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THE  WORKS 

// 


DAYID  RICARDO. 

C? 


WITH 

A  NOTICE  OF  THE  LIFE  AND  WRITINGS  OF  THE  AUTHOR, 


By  J.  R.  McCULLOCH. 

MEMBER  OF  THE  INSTITUTE  OF  FRANCE. 


$Ofrr  (EbitiojT. 

WITH  A  PORTRAIT. 


1^0  0 

LONDON: 

^jJ  JOHN  MURRAY,  ALBEMARLE  STREET. 

1888. 


tt£>  ,Z, 


ADVERTISEMENT. 


The  high  esteem  in  which  Mr  Ricardo’s  works  are  held, 
and  their  increasing  scarcity,  have  occasioned  their  being 
collected,  and  published  in  this  volume.  It  contains,  in 
addition  to  the  “  Principles  of  Political  Economy  and  Tax¬ 
ation,”  and  his  detached  Tracts,  his  Essays  on  the  Funding 
System  and  on  Parliamentary  Reform,  and  his  Speech  on 
the  Ballot,  originally  published  in  the  Supplement  to  the 
Encyclopaedia  Britannica  and  in  the  Scotsman.  A  short 
Sketch  of  his  Life  and  Writings  is  prefixed  to  the  work; 
and  an  Index  is  subjoined  to  facilitate  its  consultation. 


London.  April  >  S4C. 


I  Mo  0 


>  S',  1  * 


/  if 


CONTENTS. 


Page 


Life,  .......  xv 

PRINCIPLES  OF  POLITICAL  ECONOMY  AND  TAXATION. 

Preface,  .......  5 

Advertisement,  ......  7 

CHAPTER  I.' 

On  Value,  .......  9 


Section  I. 

The  value  of  a  commodity,  or  the  quantity  of  any  other  commodity  for 
which  it  will  exchange,  depends  on  the  relative  quantity  of  labour 
which  is  necessary  for  its  production,  and  not  on  the  greater  or  less 
compensation  which  is  paid  for  that  labour,  ...  9 

Section  II. 

Labour  of  different  qualities  differently  rewarded.  This  no  cause  of 
variation  in  the  relative  value  of  commodities,  .  .  14 

Section  III. 

Not  only  the  labour  applied  immediately  to  commodities  affect  their 
value,  but  the  labour  also  which  is  bestowed  on  the  implements 
tools,  and  buildings  with  which  such  labour  is  assisted,  .  2  6 

Section  IV. 

The  principle  that  the  quantity  of  labour  bestowed  o>n  the  production 
of  commodities  regulates  their  relative  value,  considerably  modified  by 
the  employment  of  machinery  and  othei  fixed  and  durable  capital, 


20 


Vlll 


CONTENTS. 


Section  V. 

The  principle  that  value  does  not  vary  with  the  rise  or  fall  of  wages, 
modified  also  by  the  unequal  durability  of  capital,  and  by  the  unequal 
rapidity  with  which  it  is  returned  to  its  employer, 


Page 


25 


Section  VI. 

On  an  invariable  measure  of  value,  .  .  .  .  28 


Section  VII. 

Different  effects  from  the  alteration  in  the  value  of  money,  the  medium 
in  which  Price  is  always  expressed,  or  from  the  alteration  in  the 


value  of  the  commodities  which  money  purchases, 

. 

30 

On  Rent,n 

J 

CHAPTER  II. 

34 

On  the  Rent  of  Mines, 

CHAPTER  III. 

45 

CHAPTER  IV. 

On  Natural  and  Market  Price, 

* 

47 

On  Wages,  . 

CHAPTER  V. 

50 

On  Profits,  . 

CHAPTER  VI. 

# 

60 

H  w*  \l 

CHAPTER  VII. 

1 

On  Foreign  Trade,  . 

. 

• 

72 

On  Taxes, 

CHAPTER  VIII. 

• 

87 

Taxes  on  Raw  Produce, 

CHAPTER  IX. 

91 

Taxes  on  Rent, 

CHAPTER  X. 

, 

102 

Tithes, 

CHAPTER  XI. 

104 

\ 


CONTENTS. 

IX 

CHAPTER  XII. 

Page 

Land  Tax, 

»  •  •  •  • 

CHAPTER  XIII. 

107 

Taxes  on  Gold, 

CHAPTER  XiV. 

113 

Taxes  on  Houses, 

CHAPTER  XV. 

119 

Taxes  on  Profits, 

CHAPTER  XVI. 

122 

Taxi  ?  on  Wages, 

CHAPTER  XVII. 

129 

Taxes  on  other  Commodities  than  Raw  Produce, 

CHAPTER  XVIII. 

146 

Pook  Rates, 


155 


CHAPTER  XIX. 

On  Sudden  Changes  in  the  Channels  of  Trade, 

CHAPTER  XX. 

alue  and  Riches,  their  Distinctive  Properties,  . 


159 


165N 


CHAPTER  XXI. 

Effects  of  Accumulation  on  Profits  and  Interest,  . 

CHAPTER  XXII. 

Bounties  on  Exportation,  and  Prohibitions  of  Importation, 

CHAPTER  XXIII. 

On  Bounties  on  Productions,  .... 

CHAPTER  XXIV. 

Doctrine  of  Adam  Smith  concerning  the  Rent  of  Land, 


•2 


174 


181 


193 


197 


204 


On  Colonial  Trade, 


CHAPTER  XXV. 


X 


CONTENTS. 


/ 


CHAPTER  XXVI. 

On  Gross  and  Net  Revenue, 

CHAPTER  XXVII. 

On  Currency  and  Banks,  . 

CHAPTER  XXVIII. 


Page 

21C 


21 3 


On  the  Comparative  Value  of  Gold,  Corn,  and  Labour,  in  Rich 


and  Poor  Countries,  .....  226 

CHAPTER  XXIX. 

Taxes  Paid  by  the  Producer,  ....  230 

CHAPTER  XXX. 

Of  the  Influence  of  Demand  and  Supply  on  Prices,  .  232 

CHAPTER  XXXI. 

On  Machinery,  ......  235 

CHAPTER  XXXII. 

Mr  Malthus’s  Opinions  on  Rent,  ....  243 

HIGH  PRICE  OF  BULLION  A  PROOF  OF  THE  DEPRE¬ 
CIATION  OF  BANK  NOTES,  .  .  261 


Appendix  to  Ditto,  .  .  .  .  .  201 

REPLY  TO  MR  BOSANQUET’S  PRACTICAL  OBSERVATIONS 
ON  THE  REPORT  OF  THE  BULLION  COMMITTEE,  303 

CHAPTER  I. 

Preliminary  Observations — Mr  Bosanquet’s  Objections  to  the 
Conclusions  of  the  Bullion  Committee  briefly  stated,  305 

CHAPTER  II. 

Mr  Bosanquet’s  Alleged  Facts,  drawn  from  the  History  of  the 
State  of  Exchange,  considered,  ....  308 

Section  I. 

Exchange  with  Hamburgh,  .....  308 


316 


Exchange  with  Paris, 


Section  II. 


CONTENTS. 


XI 


Section  III. 

Supposed  fact  of  a  Premium  on  English  Currency  in  America. — 
Favourable  Exchange  with  Sweden, 


Page 


313 


Section  IY. 

A  Statement  concerning  the  Par  of  Exchange,  by  the  Bullion  Committee, 

examined,  ...  321 


CHAPTER  III. 

Mr  lsosanquet’s  Alleged  Facts,  in  supposed  Refutation  of  the 
CONCLUSION,  THAT  A  RlSE  IN  THE  MARKET  PRICE  OF  BULLION 
above  the  Mint  price  proves  a  Depreciation  of  the  Currency, 
CONSIDERED,  ......  323 


Section  T. 

That  the  Negation  of  the  above  conclusion  implies  the  impossibility  of 
melting  or  exporting  English  coin — an  impossibility  contended  for 
by  nobody,  ......  — -323 


Section  II. 

Consequences  which  would  follow  on  the  Supposition  that  the  Currencies 
of  other  Countries  (exclusive  of  England),  were  diminished  or 
increased  one  half,  .  .  .  .  .  32  G 


Section  III. 

The  trifling  Rise  in  the  Price  of  Gold  on  the  Continent  owing  solely  to 

a  Variation  in  the  Relation  of  Silver  to  Gold,  .  .  32 S 

Section  IV. 

Failure  ascribed  to  Mr  Locke’s  Theory  relative  to  the  Recoinage  in 

1696,  .......  332 


CHAPTER  IV. 

Mr  Bosanquet’s  Objections  to  the  Statement,  that  the  Balance 

of  Payments  has  been  in  favour  of  Great  Britain,  examined,  334 

CHAPTER  V. 

Mr  Bosanquet’s  Argument  to  prove  that  the  Bank  of  England 
has  not  the  Power  of  Forcing  the  Circulation  of  Bank 
Notes,  considered,  .....  340 


xn 


CONTENTS. 


CHAPTER  VI. 

Observations  on  the  Principles  of  Seignorage,  .  .  345 

CHAPTER  VII. 

Mr  Bosanquet’s  Objections  to  the  Proposition,  that  the  Circula¬ 
tion  of  the  Bank  of  England  regulates  that  of  the 
Country  Banks,  considered,  .  348 

CHAPTER  VIII. 

Mr  Bosanquet’s  Opinion,  that  Years  of  Scarcity  and  Taxes  have 

BEEN  THE  SOLE  CAUSE  OF  THE  RlSE  OF  PRICES - EXCESSIVE 

Circulation  no  cause,  considered,  .  .  .  354 

CHAPTER  IX. 

Mr  Bosanquet’s  Opinion,  that  evil  would  result  from  the 

Resumption  of  Cash  Payments,  considered,  .  .  3G0 

Appendix  to  the  Reply  to  Mr  Bosanquet,  .  .  .  363 

ESSAY  ON  THE  INFLUENCE  OF  A  LOW  PRICE  OF  CORN 
ON  THE  PROFITS  OF  STOCK  ...  367 

Introduction,  ......  369 

PROPOSALS  FOR  AN  ECONOMICAL  AND  SECURE  CUR¬ 
RENCY,  WITH  OBSERVATIONS  ON  THE  PROFITS 
OF  THE  BANK  OF  ENGLAND,  ...  391 

Introduction,  ......  393 

Section  I. 

In  the  Medium  of  Circulation,  Cause  of  Uniformity  is  Cause  of  Good¬ 
ness,  .......  397 

Section  II. 

Use  of  a  Standard  Commodity — Objections  to  it  considered,  .  400 

Section  III. 

The  Standard,  its  Imperfections — Variations  below  without  allowance  of 
the  countervailing  Variations  above  the  Standard,  their  Effects — 
Correspondence  with  the  Standard  the  rule  for  Paper  Money,  402 


CONTENTS. 


xiii 


An 


Section  IV. 

Expedient  to  bring  the  English  Currency  as  near  as  possible  to 
perfection,  ...... 


Page 


404 


Section  V. 

A  Practice  which  creates  a  great  mass  of  Mercantile  Inconvenience — 

Remedy  proposed,  .  .  .  .  .  410 


Section  VI. 

The  Public  Services  of  the  Bank  excessively  overpaid — Remedy  pro¬ 
posed,  .  .  .  .  .  .  .  411 


Section  VII. 

Bank  Profits  and  Savings — Misapplication — Proposed  Remedy,  423 

Appendix  to  Proposals  for  an  Economical  and  Secure  Currency,  437 
ON  PROTECTION  TO  AGRICULTURE,  455 

Section  I. 

On  Remunerating  Price,  ....  459 

Section  II. 

On  the  Influence  of  a  Rise  of  Wages  on  the  Price  of  Corn,  .  461 

Section  III. 

On  the  Effects  of  Taxes  imposed  on  a  particular  Commodity,  4(53 

Section  IV. 

On  the  Effect  of  Abundant  Crops  on  the  Price  of  Corn,  .  465 

Section  V. 


On  the  Effect  produced  on  the  Price  of  Corn  by  Mr  Peel’s  Bill  for 

restoring  the  ancient  Standard,  ....  467 

Section  VI. 

On  the  Effects  of  a  Low  Value  of  Corn  on  the  Rate  of  Profits,  475 

Section  VII. 

Under  a  system  of  Protecting  Duties,  established  with  a  view  to  give  the 
Monopoly  of  the  Home  Market  to  the  Home  Grower  of  Corn, 
Prices  cannot  be  otherwise  than  fluctuating,  .  .  478 


XIV 


CONTENTS. 


Pago 

Section  YIIT. 

On  the  Project  of  advancing  Money  on  Loan,  to  Speculators  in  Corn,  at 

a  low  Interest,  ....  .  48fi 

Section  IX. 

Can  the  present  State  of  Agricultural  Distress  be  attributed  to  Taxa¬ 
tion  ?  .  .  .  .  .  .  487 

Conclusion,  .......  491 

Appendix  to  Protection  to  Agriculture,  .  .  .  495 

PLAN  FOR  THE  ESTABLISHMENT  OF  A  NATIONAL 

BANK,  ...  .  499 

ESSAY  ON  THE  FUNDING  SYSTEM,  .  .  .  51S 

OBSERVATIONS  ON  PARLIAMENTARY  REFORM,  . 

SPEECH  ON  VOTING  BY  BALLOT,  .  .  .  557 

£4»5 


Index 


LIFE  AND  WRITINGS 


OF 

MR  RICARDO. 


Mr  Ricardo  whs  placed,  in  early  life,  under  circumstances 
apparently  the  least  favourable  for  the  formation  of  those 
habits  of  patient  and  comprehensive  investigation,  which 
afterwards  raised  him  to  a  high  rank  among  political  phi¬ 
losophers. 

He  was  the  third  of  a  numerous  family,  and  was  born  on 
the  19th  of  April  1772.  His  father,  a  native  of  Holland, 
and  of  the  Jewish  persuasion,  settled  in  this  country  early 
in  life.  He  is  said  to  have  been  a  man  of  good  talents  and  of 
the  strictest  integrity;  and  having  become  a  member  of  the 
Stock  Exchange,  he  acquired  a  respectable  fortune,  and 
possessed  considerable  influence  in  his  circle.  David,  the 
subject  of  the  present  memoir,  was  destined  for  the  same 
line  of  business  as  his  father;  and  received,  partly  in  Eng¬ 
land,  and  partly  at  a  school  in  Holland,  where  he  resided 
two  years,  such  an  education  as  is  usually  given  to  young 
men  intended  for  the  mercantile  profession.  Classical  ■ 
learning  formed  no  part  of  his  early  instruction ;  and  it  has 
been  questioned,  with  how  much  justice  we  shall  not  under¬ 
take  to  decide,  whether  its  acquisition  would  have  done 
him  service ;  and  whether  it  might  not  probably  have  made 
him  seek  for  relaxation  in  the  study  of  elegant  literature 


XVI 


LIFE  AND  WRITINGS  OF  MR  RICARDO. 


ratliei  than  in  the  severer  exercises  of  the  understanding ; 
and  prompted  him  to  adopt  opinions  sanctioned  by  authority, 
without  inquiring  very  anxiously  into  the  grounds  on  which 
they  rested. 

Mr  Ricardo  began  to  be  confidentially  employed  by  his 
father  in  the  business  of  the  Stock  Exchange,  when  he  was 
•only  fourteen  years  of  age.  Neither  then,  however,  nor  at 
any  subsequent  period,  was  he  wholly  engrossed  by  the 
details  of  his  profession.  From  his  earliest  years  he  evinced 
a  taste  for  abstract  reasoning ;  and  manifested  that  deter¬ 
mination  to  probe  every  subject  of  interest  to  the  bottom, 
and  to  form  his  opinion  upon  it  according  to  the  convic¬ 
tion  of  his  mind,  which  was  a  distinguishing  feature  of  Id's 
character. 

Mr  Ricardo,  senior,  had  been  accustomed  to  subscribe, 
without  investigation,  to  the  opinions  of  his  ancestors,  on 
all  questions  connected  with  religion  and  politics ;  and  he 
was  desirous  that  his  children  should  do  the  same.  But 
this  system  of  passive  obedience,  and  of  blind  submis¬ 
sion  to  the  dictates  of  authority,  was  quite  repugnant 
to  the  principles  of  young  Ricardo,  who,  at  the  same  time 
that  he  never  failed  to  testify  the  sincerest  affection  and 
respect  for  his  father,  found  reason  to  differ  from  him  on 
many  important  points,  and  even  to  secede  from  the  Hebrew 
faith. 

Not  long  after  this  event,  and  shortly  after  he  had  attained 
the  age  of  majority,  Mr  Ricardo  formed  an  union,  produc¬ 
tive  of  unalloyed  domestic  happiness,  with  Miss  Wilkinson 
Having  been  separated  from  his  father,  he  was  now  thrown 
on  his  own  resources ;  and  commenced  business  for  himself 
At  this  important  epoch  of  his  history,  the  oldest  and  most 
respectable  members  of  the  Stock  Exchange  gave  a  striking 
proof  of  the  esteem  entertained  by  them  for  his  talents  and 
character,  by  voluntarily  coming  forward  to  support  him  in 
his  undertakings.  His  success  exceeded  the  most  sanguine 
expectations  of  his  friends,  and  in  a  few  years  he  realised  an 
ample  fortune. 


LIFE  AND  WRITINGS  OF  MR  RICARDO.  Xvii 

“  The  talent  for  obtaining  wealth,”  says  one  of  Mr 
Ricardo’s  near  relations,  from  whose  account  of  his  life 
we  have  borrowed  these  particulars,  “  is  not  held  in  much 
estimation ;  but  perhaps  in  nothing  did  Mr  R.  more  evince 
his  extraordinary  powers,  than  he  did  in  his  business.  His 
complete  knowledge  of  all  its  intricacies  ;  his  surprising 
quickness  at  figures  and  calculation ;  his  capability  of  getting 
through,  without  any  apparent  exertion,  the  immense  trans¬ 
actions  in  which  he  was  concerned  ;  his  coolness  and  judg¬ 
ment,  combined  certainly  with  (for  him)  a  fortunate  tissue 
of  public  events,  enabled  him  to  leave  all  his  contemporaries 
at  the  Stock  Exchange  far  behind,  and  to  raise  himself 
infinitely  higher,  not  only  in  fortune,  but  in  general  character 
and  estimation,  than  any  man  had  ever  done  before  in  that 
house.  Such  was  the  impression  which  these  qualities 
had  made  on  his  competitors,  that  several  of  the  most  dis¬ 
cerning  among  them,  long  before  he  had  emerged  into 
public  notoriety,  prognosticated  in  their  admiration,  that 
he  would  live  to  fill  some  of  the  highest  stations  in  the 
state.”*' 

According  as  his  solicitude  about  his  success  in  life* 
declined,  Mr  Ricardo  devoted  a  greater  portion  of  his  time 
to  scientific  and  literary  pursuits.  When  about  twenty- 
five  years  of  age,  he  began  the  study  of  some  branches  of 
mathematical  science,  and  made  considerable  progress  in 
chemistry  and  mineralogy.  He  fitted  up  a  laboratorj7, 
formed  a  collection  of  minerals,  and  was  one  of  the  original 
members  of  the  Geological  Society.  But  he  never  entered 
warmly  into  the  study  of  these  sciences.  They  were  not 
adapted  to  the  peculiar  cast  of  his  mind ;  and  he  aban¬ 
doned  them  entirely,  as  soon  as  his  attention  was  directed 
to  the  more  congenial  study  of  Political  Economy. 

Mr  Ricardo  is  stated  to  have  first  become  acquainted  with 
the  Wealth  of  Nations  in  1799,  while  on  a  visit  at  Bath,  to 
which  he  had  accompanied  Mrs  Ricardo  for  the  benefit 

*  See  an  Account  of  the  Life  of  Mr  Ricardo  in  the  Annual  Obituary  for  1823,  sup- 
nosed  to  be  written  by  one  of  his  brothers. 


b 


xvm 


LIFE  AND  WRITINGS  OF  MR  RI-CARDO. 


of  her  health.  He  was  highly  gratified  by  its  perusal ;  and 
it  is  most  probable  that  the  inquiries  about  which  it  is  con¬ 
versant,  continued  henceforth  to  engage  a  considerable  share 
of  his  attention,  though  it  was  not  till  a  later  period  that 
his  spare  time  was  almost  exclusively  occupied  with  their 
study. 

-  Mr  Ricardo  came,  for  the  first  time,  before  the  public  as 
an  author  in  1809.  The  rise  in  the  market  price  of  bullion, 
and  the  fall  of  the  exchange  that  had  taken  place  in  the 
course  of  that  year,  had  excited  a  good  deal  of  attention. 
Mr  Ricardo  applied  himself  to  the  consideration  of  the  sub¬ 
ject  ;  and  the  studies  in  which  he  had  latterly  been  en¬ 
gaged,  combined  with  the  experience  he  had  derived  from 
his  moneyed  transactions,  enabled  him  not  only  to  perceive 
the  true  causes  of  the  phenomena  in  question,  but  to  trace 
and  exhibit  their  practical  bearing  and  real  effect.  He 
began  this  investigation  without  intending  to  lay  the 
result  of  his  researches  before  the  public.  But  having 
shown  his  manuscript  to  the  late  Mr  Perry,  the  proprietor 
and  editor  of  the  Morning  Chronicle ,  the  latter  prevailed 
upon  him,  though  not  without  considerable  difficulty,  to 
consent  to  its  publication,  in  the  shape  of  letters,  in 
that  journal.  The  first  of  these  letters  appeared  on  the 
6th  of  September  1809.  They  made  a  considerable  im¬ 
pression,  and  elicited  various  answers.  This  success,  and 
the  increasing  interest  of  the  subject,  induced  Mr  Ricardo 
to  commit  his  opinions  upon  it  to  the  judgment  of  the 
public,  in  a  more  enlarged  and  systematic  form,  in  the 
tract  entitled  “  The  High  Price  of  Bullion  a  Proof 
of  the  Depreciation  of  Bank  Notes''  This  tract  led  the 
way  in  the  far-famed  bullion  controversy.  It  issued  from 
the  press  several  months  previously  to  the  appointment  of 
the  Bullion  Committee  ;  and  is  believed  to  have  had  no 
inconsiderable  effect  in  forwarding  that  important  measure. 
In  this  tract  Mr  Ricardo  showed  that  redundancy  and  defi¬ 
ciency  of  currency  are  only  relative  terms  ;  and  that  so  long 
as  the  currency  of  any  particular  country  consists  exclusively 


LIFE  AND  WRITINGS  OF  MR  RICARDO. 


2 IX 


of  gold  and  silver  coins,  or  of  paper  immediately  convertible 
into  such  coins,  its  value  can  neither  rise  above  nor  fall  below 
the  value  of  the  metallic  currencies  of  other  countries,  by  a 
greater  sum  than  will  suffice  to  defray  the  expense  of  import¬ 
ing  foreign  coin  or  bullion,  if  the  currency  be  deficient ;  or  of 
exporting  a  portion  of  the  existing  supply,  if  it  be  redun¬ 
dant.  But  when  a  country  issues  inconvertible  paper  notes, 
(as  was  then  the  case  in  England),  they  cannot  be  ex¬ 
ported  to  other  countries  in  the  event  of  their  becoming 
redundant  at  home;  and  whenever,  under  such  circumstances, 
the  exchange  with  foreign  states  is  depressed  below,  or  the 
price  of  bullion  rises  above,  its  mint  price,  more  than  the 
cost  of  sending  coin  or  bullion  abroad,  it  shows  conclusively 
that  too  much  paper  has  been  issued,  and  that  its  value  is 
depreciated  from  excess.  The  principles  which  pervade  the 
Report  of  the  Bullion  Committee,  are  substantially  the  same 
with  those  established  by  Mr  Ricardo  in  this  pamphlet, 
but  the  more  comprehensive  and  popular  manner  in  which 
they  are  illustrated  in  the  Report,  and  the  circumstance 
of  their  being  recommended  by  a  Committee  composed  of 
some  of  the  ablest  men  in  the  country,  gave  them  a  weight 
and  authority  which  they  could  not  otherwise  have  obtained. 
And  though  the  prejudices  and  ignorance  of  some,  and  the 
interested,  and  therefore  determined,  opposition  of  others, 
prevented  for  a  while  the  adoption  of  the  measures  proposed 
by  Mr  Ricardo  and  the  Committee  for  restoring  the  cur- 
rency  to  a  sound  and  healthy  state,  thev  were  afterwards 
carried  into  full  effect ;  and  afford  one  of  the  most  memor¬ 
able  examples  in  our  history,  of  the  triumph  of  principle 
over  selfishness,  sophistry,  and  error. 

The  fourth  edition  of  this  tract  is  the  most  valuable. 
An  Appendix  added  to  it  has  some  acute  observations  on 
some  difficult  questions  in  the  theory  of  exchange  ;  and  it 
also  contains  the  first  germ  of  the  original  idea  of  making 
bank  notes  exchangeable  for  bars  of  gold  bullion. 

Among  those  who  entered  the  lists  in  opposition  to  the 
principles  laid  down,  and  the  practical  measures  suggested 


XX  LIFE  AND  WRITINGS  OF  MR  RICARDO. 

in  Mr  Ricardo’s  tract,  and  in  the  Report  of  the  Bullion 
Committee,  a  prominent  place  is  due  to  Mr  Bosanquet.  This 
gentleman  had  great  experience  as  a  merchant ;  and  as 
he  professed  that  the  statements  and  conclusions  embodied 
in  his  “  Practical  Observations ,”  which  are  completely  at 
variance  with  those  in  the  Report,  were  the  result  of  a 
careful  examination  of  the  theoretical  opinions  of  the  Com¬ 
mittee  by  the  test  of  fact  and  experiment,  they  were  well 
fitted  to  make,  and  did  make,  a  very  considerable  impres¬ 
sion.  The  triumph  of  Mr  Bosanquet  was,  however,  of  very 
short  duration.  Mr  Ricardo  did  not  hesitate  to  attack  this 
formidable  adversary  in  his  stronghold.  His  tract,  en¬ 
titled,  “  Reply  to  Mr  Bosanquet' s  Practical  Observations 
on  the  Report  of  the  Bullion  Committee,"  was  published 
in  1811,  and  is  one  of  the  best  essays  that  has  appeared 
on  any  disputed  question  of  Political  Economy.  In  this 
pamphlet,  Mr  Ricardo  met  Mr  Bosanquet  on  his  own 
ground,  and  overthrew  him  with  his  own  weapons.  He 
examined  all  the  proofs  which  Mr  Bosanquet  had  brought 
forward,  of  the  pretended  discrepancy  between  the  facts 
stated  in  his  own  tract,  which  he  said  were  consistent  with 
experience,  and  the  theory  laid  down  in  the  Bullion  Report ; 
and  showed  that  Mr  B.  had  either  mistaken  the  cases  bv 
which  he  proposed  to  test  the  theory,  or  that  the  discrepancy 
was  only  apparent,  and  was  entirely  a  consequence  of  his 
inability  to  apply  the  theory,  and  not  of  any  thing  erroneous 
or  deficient  in  it.  The  victory  of  Mr  Ricardo  was  perfect 
and  complete  ;  and  the  elaborate  errors  and  mis-statements 
‘of  Mr  Bosanquet  served  only,  to  use  the  words  of  Dr 
Coppleston,  “  to  illustrate  the  abilities  of  the  writer  who 
stepped  forward  to  vindicate  the  truth.” * 

This  tract  affords  a  striking  example  of  the  ascendency 
which  those  who  possess  a  knowledge  both  of  principle  and 
practice,  have  over  those  who  are  familiar  only  with  the 
latter ;  and  though  the  interest  of  the  question  which  led  to 


*  First  Letter  to  the  Right  lion.  Robert  Peel,  by  one  of  his  Constituents,  p.  61. 


LIFE  AND  WRITINGS  OF  MR  RICARDO. 


XXI 


its  publication  has  now  subsided,  it  will  always  be  read  with 
delight  by  such  as  are  not  insensible  of  the  high  gratifica¬ 
tion  which  all  ingenuous  minds  must  feel  in  observing 
the  ease  with  which  a  superior  intellect  clears  away  the 
irrelevant  matter  with  which  a  question  has  been  de¬ 
signedly  embarrassed,  reduces  false  facts  to  their  just  value, 
and  traces  and  exhibits  the  constant  operation  of  the  same 
general  principle  through  all  the  mazy  intricacies  of  prac¬ 
tical  detail. 

The  merit  of  these  pamphlets  was  duly  appreciated  ;  and* 
Mr  Ricardo’s  society  was,  in  consequence,  courted  by  men 
of  the  first  eminence,  who  were  not  less  pleased  with  his 
modesty,  and  unassuming  manners,  than  with  the  vigour  of 
his  understanding.  He  formed,  about  this  time,  that  intimacy 
with  Mr  Malthus,  and  Mr  Mill,  the  historian  of  British 
India,  which  ended  only  with  his  death.  To  the  latter  he 
was  particularly  attached,  and  readily  acknowledged  how 
much  he  owed  to  his  friendship. 

Mr  Ricardo  next  appeared  as  an  author  in  1815,  during* 
the  discussions  on  the  bill,  afterwards  passed  into  a  law,  for 
raising  the  limit  at  which  foreign  corn  might  be  imported  for 
consumption,  to  80s.  Mr  Malthus,  and  a  “  Fellow  of  Univer¬ 
sity  College,  Oxford,”  (afterwards  Sir  Edward  West),  had,  by 
a  curious  coincidence,  in  tracts  published  almost  consenta¬ 
neously,  elucidated  the  true  theory  of  rent,  which,  though 
discovered  by  Dr  Anderson  as  early  as  1777,  appears  to  have 
been  entirely  forgotten.  But  neither  of  these  gentlemen 
perceived  the  bearing  of  the  theory  on  the  question  in  regard 
to  the  restriction  of  the  importation  of  foreign  corn.  This 
was  reserved  for  Mr  Ricardo,  who,  in  his  “  Essay  on  the 
Influence  of  a  Low  Price  of  Corn  on  the  Profits  of  Stock” 
showed  the  effect  of  an  increase  in  the  price  of  raw  produce 
on  wages  and  profits ;  and  founded  a  strong  argument  in 
favour  of  the  freedom  of  the  corn  trade,  on  the  very  grounds 
on  which  Mr  Malthus  had  endeavoured  to  show  the  propriety 
of  subjecting  it  to  fresh  restrictions. 

In  1816,  Mr  Ricardo  published  his  “Proposals  for  an 


XX  li 


LIFE  AND  WRITINGS  OF  MR  RICARDO. 


Economical  and  Secure  Currency ,  with  Observations  on  the 
•  Profits  of  the  Bank  of  England .”  In  this  pamphlet  he 

examined  the  circumstances  which  determine  the  value 
of  money,  when  every  individual  has  the  power  to  supply 
it,  and  when  that  power  is  restricted  or  placed  under  a 
monopoly  ;  and  he  showed  that,  in  the  former  case,  its 
value  will  depend,  like  that  of  all  other  freely  supplied 
articles,  on  its  cost ;  while  in  the  latter,  it  will  be  unaffected 
by  that  circumstance,  and  will  depend  on  the  extent  to 
which  it  may*  be  issued  compared  with  the  demand.  This 
is  a  principle  of  great  importance ;  for,  it  shows  that  intrinsic 
worth  is  not  necessary  to  a  currency,  and  that,  provided  the 
supply  of  paper  notes,  declared  to  be  legal  tender,  be 
sufficiently  limited,  their  value  may  be  maintained  on  a  par 
with  the  value  of  gold,  or  raised  to  any  higher  level.  If, 
therefore,  it  were  practicable  to  devise  a  plan  for  preserving 
the  value  of  paper  on  a  level  with  that  of  gold,  without 
making  it  convertible  into  coin  at  the  pleasure  of  the  holder, 
the  heavy  expense  of  a  metallic  currency  would  be  saved. 
To  effect  this  desirable  object,  Mr  Ricardo  proposed  that, 
instead  of  being  made  exchangeable  for  gold  coins,  bank 
notes  should  be  made  exchangeable  for  bars  of  gold  bullion 
of  the  standard  iceight  and  purity.  This  plan,  than  which 
nothing  can  be  more  simple,  was  obviously  fitted  to  check 
the  over-issue  of  paper  quite  as  effectually  as  it  is  checked 
by  making  it  convertible  into  coin ;  while,  as  bars  could  not 
be  used  as  currency,  it  prevented  any  gold  from  getting 
into  circulation,  and  consequently  saved  the  expenses  of 
coinage,  and  the  wear  and  tear,  and  loss  of  coins.  Mr 
Ricardo’s  proposal  was  recommended  by  the  Committees 
of  the  Houses  of  Lords  and  Commons  appointed,  in  1819, 
to  consider  the  expediency  of  the  Bank  of  England  re¬ 
suming  cash  payments ;  and  was  afterwards  adopted  in  the 
bill  for  their  resumption  introduced  by  Mr  (now  Sir  Robert) 
Peel.  In  practice  it  was  found  completely  to  answer  the 
object  of  checking  over-issue.  But  inasmuch  as  it  required 
that  the  place  of  sovereigns  should  be  filled  with  one  pound 


LIFE  AND  WRITINGS  OF  MR  RICARDO.  XXlii 

notes,  the  forgery  of  the  latter  began  to  be  extensively 
carried  on  ;  and  it  was  wisely  judged  better  to  incur  the 
expense  of  recurring  to  and  keeping  up  a  mixed  cur¬ 
rency,  than  to  continue  a  plan  which,  though  productive 
of  a  large  saving,  held  out  an  all  but  irresistible  temptation 
to  crime. 

At  length,  in  1817,  Mr  Ricardo  published  his  great  work 
on  the  “  Principles  of  Political  Economy  and  Taxation.” 
This  was  a  step  which  he  did  not  take  without  much  hesi¬ 
tation.  He  was  not,  and  did  not  affect  to  be,  insensible  of 
the  value  of  literary  and  philosophical  reputation  ;  but  his 
modesty  always  led  him  to  undervalue  his  own  powers ;  and 
having  acquired  a  very  high  degree  of  celebrity  as  a  writer 
on  currency,  he  was  unwilling  to  risk  what  he  already 
possessed,  by  attempting  to  gain  more.  Ultimately,  how¬ 
ever,  he  was  prevailed  upon,  by  the  entreaties  of  his  friends, 
to  allow  his  work  to  be  sent  to  press.  Its  appearance  forms 
a  memorable  aera  in  the  history  of  political  science.  Ex¬ 
clusive  of  many  valuable  subsidiary  inquiries,  Mr  Ricardo 
has  pointed  out,  in  this  work,  the  source  and  limiting  prin¬ 
ciple  of  exchangeable  value,  and  has  traced  the  laws 
which  determine  the  distribution  of  wealth  among  the 
various  ranks  and  orders  of  society.  The  powers  of  mind 
displayed  in  these  investigations,  the  dexterity  with  which 
the  most  abstruse  questions  are  unravelled,  the  sagacity 
displayed  in  tracing  the  operation  of  general  principles, 
in  disentangling  them  from  such  as  are  of  a  secondary  and 
accidental  nature,  and  in  perceiving  and  estimating  their 
remote  consequences,  have  never  been  surpassed ;  and  will 
for  ever  secure  the  name  of  Ricardo  a  conspicuous  place 
among  those  who  have  done  most  to  unfold  the  mechanism 
of  society,  and  to  discover  the  circumstances  on  which 
the  well-being  of  its  various  orders  must  always  mainly 
depend. 

Mr  Ricardo  maintains,  in  this  work,  the  fundamental 
principle,  that  the  exchangeable  value  of  commodities  or 
their  relative  worth,  as  compared  with  each  other,  de- 


XXIV  LIFE  AND  WRITINGS  OF  MR  RICARDO. 

pends  exclusively  oil  the  quantities  of  labour  necessarily 
required  to  produce  them,  and  bring  them  to  market. 
Smith  had  shown  that  this  principle  determined  the  value 
of  commodities  in  the  earlier  stages  of  society,  before  land 
had  been  appropriated  and  capital  accumulated  ;  but  he 
supposed  that,  after  land  had  become  property  and  rent 
began  to  be  paid,  and  after  capital  had  been  amassed  and 
workmen  began  to  be  hired  by  capitalists,  the  value  of 
commodities  fluctuated  not  only  according  to  variations  in 
the  labour  required  to  produce  and  bring  them  to  market, 
but  also  according  to  variations  of  rents  and  wages.  But  Mr 
Ricardo  has  shown  that  this  theory  is  erroneous,  and  that 
the  value  of  commodities  is  determined  in  all  states  of  society 
by  the  same  principle,  or  by  the  quantity  of  labour  requir¬ 
ed  for  their  production.  He  showed  that  variations  of 
profits  or  wages,  by  affecting  different  commodities  to  the 
same,  or  nearly  the  same,  extent,  would  either  have  no 
influence  over  their  exchangeable  value,  or  if  they  had  any, 
it  would  depend  upon  the  degree  in  which  they  occasionally 
affect  some  products  more  than  others.  And  Dr  Anderson  and 
others  having  already  shown  that  rent  is  not  an  element  of 
cost  or  value,  it  follows  that  the  cost  or  value  of  all  freely 
produced  commodities,  the  supply  of  which  may  be  inde¬ 
finitely  increased  (abstracting  from  temporary  variations  of 
supply  and  demand),  depends  wholly  on  the  quantity  of 
labour  required  for  their  production,  and  not  upon  the  rate 
at  which  that  labour  may  be  paid  ;  so  that,  supposing  the 
labour  required  to  produce  any  number  of  commodities  to 
remain  constant,  their  cost  and  value  will  also  remain  con¬ 
stant,  whether  wages  fall  from  3s.  to  Is.,  or  rise  from  3s.  to 
5s.  or  7s.  a-day.  This  is  the  fundamental  theorem  of  the 
science  of  value,  and  the  clue  which  unravels  the  intricate 
labyrinth  of  the  laws  which  regulate  the  distribution  of 
wealth.  Its  discovery  has  shed  a  flood  of  light  on  what 
was  previously  shrouded  in  all  but  impenetrable  mystery, 
and  the  apparently  knotty  and  hitherto  insoluble  questions 
regarding  the  action  of  wages  and  profits  on  each  other  and 


LIFE  AND  WRITINGS  OF  31R  RICARDO 


XXV 


on  prices,  have  since  ceased  to  present  any  insuperable  diffi¬ 
culties.  What  the  researches  of  Locke  and  Smith  did  for 
the  production  of  wealth,  those  of  Ricardo  have  done  for  its 
value  and  distribution. 

The  establishment  of  general  principles  being  Mr  Ricardo’s  ( 
great  object,  he  has  paid  comparatively  little  attention  to 
their  practical  application,  and  sometimes,  indeed,  he  has  in 
great  measure  overlooked  the  circumstances  by  'which  they 
are  occasionally  countervailed.  In  illustration  of  this  we 
may  mention,  that  society  being  laid  under  the  necessity  of 
constantly  resorting  to  inferior  soils  to  obtain  additional 
supplies  of  food,  Mr  Ricardo  lays  it  down  that,  in  the  pro¬ 
gress  of  society,  raw  produce  and  wages  have  a  constant  ten¬ 
dency  to  rise  and  profits  to  fall.  And  this,  no  doubt,  is  in 
the  abstract  true.  But  it  must  at  the  same  time  be  ob¬ 
served,  that  while  on  the  one  hand  society  is  obliged  con¬ 
stantly  to  resort  to  inferior  soils,  agriculture  is  on  the 
other  hand  susceptible  of  indefinite  improvement ;  and  this 
improvement  necessarily  in  so  far  countervails  the  decreasing 
fertility  of  the  soil ;  and  may,  and  in  fact  very  frequently 
does,  more  than  countervail  it.  Mr  Ricardo  has  also  very 
generally  overlooked  the  influence  of  increased  prices  in 
diminishing  consumption  and  stimulating  industry,  so  that: 
his  conclusions,  though  true  according  to  his  assumptions,  > 
do  not  always  harmonise  with  what  really  takes  place.  But 
his  is  not  a  practical  work ;  and  it  did  not  enter  into  his 
plan  to  exhibit  the  circumstances  that  give  rise  to  the 
discrepancies  in  question.  The  “  Principles  of  Political  • 
Economij  and  Taxation ”  is  not  even  a  systematic  treatise, 
but  is  principally  an  inquiry  respecting  certain  fundamental 
principles,  most  of  which  had  previously  been  undiscovered. 
And  though  it  be  often  exceedingly  difficult,  or,  it  may  be, 
all  but  impossible,  to  estimate  the  extent  to  which  these 
principles  may  in  certain  cases  be  modified  by  other  prin¬ 
ciples  and  combinations  of  circumstances,  it  is  obviously 
of  the  greatest  importance  to  have  ascertained  their  exis¬ 
tence.  They  are  so  many  land-marks  to  which  to  refer  J, 


XXVI 


LIFE  AND  WRITINGS  OF  MR  RICARDO. 


and  can  never  be  lost  sight  of  even  in  matters  most  essen¬ 
tially  practical. 

That  part  of  Mr  Ricardo’s  work,  in  which  he  applies  his 
principles  to  discover  the  incidence  of  taxes  on  rent,  profit, 
wages,  and  raw  produce,  is  more  practical  than  the  others ; 
and  must  always  be  a  subject  of  careful  study  to  those  who 
wish  to  make  themselves  well  acquainted  with  this  depart¬ 
ment  of  political  science. 

*  Mr  Ricardo  had  now  become  an  extensive  landed  pro¬ 
prietor,  and  had  wholly  retired  from  business,  with  a  fortune 
*  acquired  with  the  universal  respect  and  esteem  of  his  com¬ 
petitors.  But  he  did  not  retire  from  the  bustle  of  active 
life,  to  the  mere  enjoyment  of  his  acres — Non  fuit  consilium 
socordia  atque  desidia  bonum  otium  conterere — he  had  other 
objects  in  view;  and  while  his  leisure  hours,  when  in  the 
country,  were  chiefly  devoted  to  inquiries  connected  with 
that  science,  of  which  he  was  now  confessedly  at  the  head, 
he  determined  to  extend  the  sphere  of  his  usefulness,  by 
’  entering  the  House  of  Commons.  In  1819  he  took  his  seat 
as  member  for  Portarlington.  His  diffidence  in  his  own 
powers  had,  however,  nearly  deprived  the  public  of  the 
services  which  he  rendered  in  this  situation.  In  a  letter 
to  one  of  his  friends,  dated  the  7th  of  April  1819,  he  says: 
“  You  will  have  seen  that  I  have  taken  my  seat  in  the 
House  of  Commons.  I  fear  that  I  shall  be  of  little  use  there. 
I  have  twice  attempted  to  speak  ;  but  I  proceeded  in  the 
most  embarrassed  manner  ;  and  I  have  no  hope  of  conquer¬ 
ing  the  alarm  with  which  I  am  assailed  the  moment  I  hear 
the  sound  of  my  own  voice.”  And  in  a  letter  to  the  same 
gentleman,  dated  the  22d  of  June  1819,  he  says:  “  I  thank 
you  for  your  endeavours  to  inspire  me  with  confidence  on 
the  occasion  of  my  addressing  the  House.  Their  indulgent 
reception  of  me  has,  in  some  degree,  made  the  task  of  speak¬ 
ing  more  easy  to  me  ;  but  there  are  yet  so  many  formidable 
obstacles  to  my  success,  and  some,  I  fear,  of  a  nature  nearly 
insurmountable,  that  I  apprehend  it  will  be  wisdom  and 
sound  discretion  in  me  to  content  myself  with  giving  silent 


LIFE  AND  WRITINGS  OF  MR  RICARDO. 


xxvii 


votes.”  Fortunately  he  did  not  adopt  this  resolution.  The  ‘ 
difficulties  with  which  he  had  at  first  to  struggle,  and  his 
diffidence  in  himself,  gradually  subsided  ;  while  the  mildness 
of  his  manners,  the  mastery  which  he  possessed  over  the 
subjects  on  which  he  spoke,  and  the  purity  of  his  inten¬ 
tions,  speedily  secured  him  a  very  extensive  influence  both 
in  the  House  and  the  country,  and  gave  great  weight  to  his 
opinions. 

Mr  Ricardo  was  not  one  of  those  who  make  speeches  to  » 
suit  the  ephemeral  circumstances  and  politics  of  the  day:  he 
spoke  only  from  principle,  and  with  a  fixed  resolution  never 
to  diverge  in  any  degree  from  the  path  which  it  pointed 
out;  he  neither  concealed  nor  modified  an  opinion  for  the 
purpose  of  conciliating  the  favour,  or  of  disarming  the  pre¬ 
judices  or  hostility,  of  any  man  or  set  of  men ;  nor  did  he 
ever  make  a  speech  or  give  a  vote  which  he  was  not 
well  convinced  was  founded  on  just  principles,  and  calcu¬ 
lated  to  promote  the  lasting  interests  of  the  public.  Trained  * 
to  habits  of  profound  thinking,  independent  in  his  fortune, 
and  inflexible  in  his  principles,  Mr  Ricardo  had  little  in 
common  with  mere  party  politicians.  The  public  good* 
was  the  grand  object  of  his  parliamentary  exertions  ;  and 
he  laboured  to  promote  it,  not  by  engaging  in  party  com¬ 
binations,  but  by  supporting  the  rights  and  liberties  of  all 
classes,  and  by  unfolding  the  true  sources  of  national  wealth 
and  general  prosperity. 

The  change  that  has  taken  place  in  the  public  opinion 
respecting  the  financial  and  commercial  policy  of  the  coun¬ 
try,  since  the  period  when  Mr  Ricardo  obtained  a  seat  in 
the  House  of  Commons,  is  as  complete  as  it  is  gratifying. 
Not  only  are  the  most  enlarged  principles  advocated  by  all 
the  leading  members  of  both  Houses ;  not  only  are  they 
now  ready  to  admit  that  the  exclusive  system  is  founded  on 
vicious  principles,  and  that  it  is  sound  policy  to  admit  the 
freest  competition  in  every  branch  of  industry,  and  to  deal 
with  all  the  world  on  fair  and  liberal  principles ;  but  they  are 
about  to  make  these  doctrines  a  part  of  the  law  of  the  land, 


xxvm 


LIFE  AND  WRITINGS  OF  MR  RICARDO. 


and  to  give  them  the  sanction  of  parliamentary  authority. 

•  Sir  Robert  Peel  has  the  signal  merit  of  having,  despite  the 
most  formidable  obstacles,  carried  out  and  established  in 
their  fullest  extent  the  great  principles  of  commercial  free¬ 
dom  developed  by  Smith  and  his  followers.  And  we  believe 
that  that  distinguished  statesman  would  readily  admit  that 
the  writings  and  speeches  of  Mr  Ricardo  have  powerfully  con¬ 
tributed  to  pave  the  way  for  this  most  desirable  consummation. 
As  he  was  known  to  be  a  master  in  “the  master-science  of  civil 
life,”  his  opinion,  from  the  moment  he  entered  the  House 
of  Commons,  was  referred  to  on  all  important  occasions;* 
and  he  acquired  additional  influence  and  consideration, 
according  as  experience  served  to  render  the  House  and 
the  country  better  acquainted  with  his  talents,  and  his 
singleness  of  purpose. 

In  1820,  Mr  Ricardo  contributed  an  article  on  the 
“  Funding  System ,”  to  the  Supplement  to  the  “  Encyclo¬ 
paedia  Britannica.”  This  tract,  though  somewhat  confused 
in  its  arrangement,  embraces  many  valuable  discussions. 
He  was  a  decided  friend  to  the  plan  for  raising  the  supplies 
for  a  war  within  the  year,  by  an  equivalent  increase  of 
"  taxation ;  and  he  also  thought  (in  which  opinion  few  probablv 
will  be  disposed  to  concur),  that  it  would  be  not  only  ex¬ 
pedient  but  practicable  to  pay  off  the  public  debt  by  an 
assessment  on  capital. 

In  1822,  Mr  Ricardo  published,  during  the  parliamentary 
discussions  on  the  subject  of  the  corn  laws,  his  tract  on  “  Pro¬ 
tection  to  Agricidtu,  c.”  This  is  the  best  of  all  his  pamphlets, 
«■  and  is,  indeed,  a  chef-d'oeuvre.  The  important  questions 
respecting  remunerating  price,  the  influence  of  a  low  and 
high  value  of  corn  over  wages  and  profits,  the  influence  of 
taxation  over  agriculture  and  manufactures,  and  many  other 
topics  of  equal  difficulty  and  interest,  are  all  discussed  in 


*  Mr  Ricardo  made  the  first  of  his  prominent  appearances  on  the  24th  of  May 
1819,  in  the  debate  on  the  resolutions  proposed  by  Mr  (now  Sir  Robert)  Peel  respect¬ 
ing  the  resumption  of  cash  payments.  He  did  not  rise  until  he  was  loudly  called  upon 
from  all  sides  of  the  House. 


LIFE  AND  WRITINGS  OF  MR  RICARDO. 


XXIX 


the  short  compass  of  eighty  or  ninety  pages,  with  a  pre¬ 
cision  and  clearness  that  leaves  nothing  to  be  desired. 
Had  Mr  Ricardo  never  written  any  thing  else,  this  pamphlet 
would  have  placed  him  in  the  first  rank  of  political  eco¬ 
nomists. 

Though  not  robust,  Mr  Ricardo’s  constitution  was  appa¬ 
rently  good,  and  his  health  such  as  to  promise  a  long  life  of 
usefulness.  He  had,  indeed,  been  subject,  for  several  years, 
to  an  affection  in  one  of  his  ears ;  but  as  it  had  not  given 
him  any  serious  inconvenience,  he  paid  it  but  little  attention 
Whenheretiredto  his  seat  in  Gloucestershire  (Gatcomb  Park), 
subsequently  to  the  close  of  the  session  of  1823,  he  was  irr 
excellent  health  and  spirits ;  and,  besides  completing  a  tract, 
containing  a  plan  for  the  establishment  of  a  National  Bank , 
he  engaged,  with  his  usual  ardour,  in  elaborate  inquiries 
regarding1  some  of  the  more  abstruse  economical  doctrines. 
Rut  he  was  not  destined  to  bring  these  inquiries  to  a  close  ! 
Early  in  September  he  was  suddenly  seized  with  a  violent 
pain  in  the  diseased  ear  :  the  symptoms  xvere  not,  how¬ 
ever,  considered  unfavourable  ;  and  the  breaking  of  an 
imposthume  that  had  been  formed  within  the  ear  contri¬ 
buted  greatly  to  his  relief.  But  the  amendment  was  only 
transitory;  within  two  days,  inflammation  recommenced; 
and  after  a  period  of  the  greatest  agony,  pressure  on  the 
brain  ensued,  which  produced  a  stupor  that  continued  until 
death  terminated  his  sufferings,  on  the  11th  September,  in 
his  52d  year. 

In  private  life,  Mr  Ricardo  was  most  amiable.  He 
was  an  indulgent  father  and  husband ;  and  an  affectionate, 
and  zealous  friend.  No  man  was  ever  more  thoroughly  free 
from  every  species  of  artifice  and  pretension  ;  more  sincere, 
plain,  and  unassuming.  He  was  particularly  fond  of  assem¬ 
bling  intelligent  men  around  him,  and  of  conversing  in  the 
most  unrestrained  manner  on  all  topics  of  interest,  but  more 
especially  on  those  connected  with  his  favourite  science.  On 
these  as  on  all  occasions,  he  readily  gave  way  to  others,  and 
never  discovered  the  least  impatience  to  speak ;  but  when 


XXX 


LIFE  AND  WRITINGS  OF  MR  RICARDO. 


•  lie  did  speak,  the  solidity  of  his  judgment,  liis  candour, 
and  liis  extraordinary  talent  for  resolving  a  question  into 
its  elements,  and  for  setting  the  most  difficult  and  compli¬ 
cated  subjects  in  the  most  striking  point  of  view,  arrested 
the  attention  of  every  one,  and  delighted  all  who  heard 
him.  He  never  entered  into  an  argument,  whether  in  public 
or  private,  for  the  sake  of  displaying  ingenuity,  of  baffling  an 

•  opponent,  or  of  gaining  a  victory.  The  discovery  of  truth 
was  his  exclusive  object.  He  was  ever  open  to  conviction ; 
and  if  he  were  satisfied  he  had  either  advanced  or  supported 
an  erroneous  opinion,  he  was  the  first  to  acknowledge  his 
error,  and  to  caution  others  against  it. 

Few  men  have  possessed  in  a  higher  degree  than  Mr 
Ricardo,  the  talent  of  speaking  and  conversing  with  clearness 
and  facility  on  the  abstrusest  topics.  In  this  respect,  his 
speeches  were  greatly  superior  to  his  publications.  The  latter 
cannot  be  readily  understood  and  followed  without  consider¬ 
able  attention ;  but  nothing  could  exceed  the  ease  and  felicity 
with  which  he  illustrated  and  explained  the  most  difficult 
questions  of  Political  Economy,  both  in  private  conversation 

•and  in  his  speeches.  Without  being  forcible,  his  style  of 
speaking  was  easy,  fluent,  and  agreeable.  It  was  impossible 
to  take  him  off  his  guard.  To  those  who  were  not  familiar 
with  his  speculations,  some  of  his  positions  were  apt  to  appear 
paradoxical ;  but  the  paradox  was  only  in  appearance.  He 
rarely  advanced  an  opinion  on  which  he  had  not  deeply  re¬ 
flected,  and  without  examining  it  in  every  point  of  view ;  and 
the  readiness  with  which  he  overthrew  the  most  specious 
objections  that  the  ablest  men  in  the  House  could  make  to 
his  doctrines,  is  the  best  proof  of  their  correctness,  and 
of  the  superiority  of  his  understanding.  That  there  were 
greater  orators,  and  men  of  more  varied  and  general  ac¬ 
quirements  in  Parliament  than  Mr  Ricardo,  we  readily 
allow ;  but  we  are  bold  to  say,  that  in  point  of  deep, 
clear,  and  comprehensive  intellect,  he  had  no  superiors, 
and  very  few,  if  any,  equals,  either  in  Parliament  or  in  the 
country. 


LIFE  AND  WRITINGS  OF  MR  RICARDO. 


xxxi 

He  Mas  not  less  generous  than  intelligent ;  he  M-as  never 
sloMr  to  come  forward  to  the  relief  of  the  poor  and  the  dis¬ 
tressed  ;  and  Mrhile  he  contributed  to  almost  every  charitable 
institution  in  the  metropolis,  he  supported,  at  his  own  ex¬ 
pense,  an  alms-house  for  the  poor,  and  tMro  schools  for  the 
instruction  of  the  young  in  the  vicinity  of  his  seat  in  the 
country. 

Besides  the  publications  previously  enumerated,  Mr  Ri¬ 
cardo  left  one  or  two  manuscripts.  Among  others,  a  “  Plan 
for  the  Establishment  of  a  National  Bank ”  was  found  in  a 
finished  state,  and  Mas  soon  after  published. 

He  also  left  “  Notes ”  on  Mr  Malthus’s  Principles  of  Poli¬ 
tical  Economy;  containing  a  vindication  of  his  own  doctrines 
from  the  objections  of  Mr  Malthus,  and  showing  the  mis¬ 
takes  into  which  he  conceives  Mr  M.  had  fallen.  But  we 
doubt  M’hether  they  have  sufficient  interest  to  warrant  their 
publication. 

Though  not  properly  belonging  to  the  Whig  party,  Mr 
Ricardo  voted  almost  uniformly  with  the  Opposition.  He 
was  impressed  with  the  conviction,  that  many  advantages 
M  ould  result  from  giving  the  people  a  greater  influence  over 
the  choice  of  their  representatives  in  the  House  of  Commons 
than  they  then  possessed  ;  and  he  Mas  so  far  a  friend  to  the 
system  of  the  radical  reformers,  as  to  give  his  cordial  support 
to  the  plan  of  voting  by  ballot ;  which  he  considered  as  the 
best  means  for  securino-  the  mass  of  the  electors  against  im- 
proper  solicitations,  and  for  enabling  them  to  vote  in  favour 
of  the  candidates  M’hom  they  really  approved.  He  did  not, 
however,  agree  with  the  radical  reformers  in  their  plan  of 
universal  suffrag’e ;  he  thought  the  elective  franchise  should 
be  given  to  all  who  possessed  a  certain  amount  of  property ; 
but  he  M  as  of  opinion,  that  while  it  M  ould  be  a  very  hazardous 
experiment,  no  practical  good  Mould  result  from  giving  the 
franchise  indiscriminately  to  all.  His  opinions  on  these 
subjects  are  fully  stated  in  the  Essay  on  Parliamentary 
Reform ,  and  in  the  Speech  on  the  Ballot ,  in  this  edition  of 
his  Morks. 


XXX11 


LIFE  AMD  WRITINGS  OF  MR  RICARDO. 


Of  the  value  of  the  services  rendered  by  Mr  Ricardo 
to  Political  Economy,  there  can  be,  among  intelligent 
men,  only  one  opinion.  His  works  have  made  a  verv 
great  addition  to  the  mass  of  useful  and  universally  inte¬ 
resting  truths,  and  afford  some  of  the  finest  examples  to 
be  met  with  of  discriminating  analysis,  and  of  profound 
and  refined  discussion.  The  brevity  with  which  he  has 
stated  some  of  his  most  important  propositions ;  their 
intimate  dependence  on  each  other  ;  the  fewness  of  his 
illustrations  ;  and  the  mathematical  cast  he  has  given  to  his 
reasoning,  render  it  sometimes  a  little  difficult  for  readers, 
unaccustomed  to  such  investigations,  readily  to  follow  him. 
But  we  can  venture  to  affirm,  that  those  who  will  give  to 
his  works  the  attention  of  which  they  are  so  worthy,  will 
find  them  to  be  as  logical  and  conclusive  as  they  are  pro¬ 
found  and  important.  It  was  the  opinion  of  Quintilian,  that 
the  students  of  eloquence  who  were  highly  delighted  with 
Cicero,  had  made  no  inconsiderable  progress  in  their  art : 
and  the  same  may,  without  hesitation,  be  said  of  the 
students  of  Political  Economy  who  find  pleasure  in  the  works 
of  Mr  Ricardo  :  I  lie  se  profecisse  sciat,  cui  Ricardo  valde 
placebit. 

*  When  the  circumstances  under  which  Mr  Ricardo  spent 
the  greater  part  of  his  life  are  brought  under  view ;  and 
when  it  is  also  recollected  that  he  died  at  the  early  age  of 
jifty-one,  it  may  be  truly  said  that  very  few  have  ever  achieved 
so  much.  His  industry  was  as  remarkable  as  his  sagacity 
and  his  candour. 

“  The  history  of  Mr  Ricardo,”  to  use  the  words  of  Mi- 
Mill,  “  holds  out  a  bright  and  inspiring  example.  Mr 
Ricardo  had  every  thing  to  do  for  himself ;  and  he  did 
every  thing.  Let  not  the  generous  youth,  whose  aspirations 
are  higher  than  his  circumstances,  despair  of  attaining  either 
the  highest  intellectual  excellence,  or  the  highest  influence 
in  the  welfare  of  his  species,  when  he  recollects  in  what 
circumstances  Mr  Ricardo  opened,  and  in  what  he  closed, 
his  memorable  life.  He  had  his  fortune  to  make  ;  his  mind 


LIFE  AND  WRITINGS  OF  AIR  RICARDO.  xxxiii 

to  form ;  he  had  even  his  education  to  commence  and  con¬ 
duct.  In  a  field  of  the  most  intense  competition,  he  realized 
a  large  fortune,  with  the  universal  esteem  and  affection  of 
those  who  could  best  judge  of  the  honour  and  purity  of  his 
acts.  Amid  this  scene  of  active  exertion  and  practical 
detail,  he  cultivated  and  he  acquired  habits  of  intense,  and 
patient,  and  comprehensive  thinking;  such  as  have  been 
rarely  equalled,  and  never  excelled.” 

Mr  Ricardo  left  a  widow,  three  sons,  and  four  daughters. 


PRINCIPLES  OF  POLITICAL  ECONOMY 


TAXATION. 


THIRD  EDITION. 


LONDON. 


182 1 


ADVERTISEMENT  TO  THE  THIRD  EDITION. 


—  p 

In  this  Edition  I  have  endeavoured  to  explain  more  fully  than  in 
the  last,  my  opinion  on  the  difficult  subject  of  Value,  and  for  that 
purpose  have  made  a  few  additions  to  the  first  chapter.  I  have 
also  inserted  a  new  chapter  on  the  subject  of  Machinery,  and  on 
the  effects  of  its  improvement  on  the  interests  of  the  different 
classes  of  the  State.  In  the  chapter  on  the  Distinctive  Pro¬ 
perties  of  Value  and  Riciies,  I  have  examined  the  doctrines  of 
M.  Say*<5h  that  important  question,  as  amended  in  the  fourth  and 
last  edition  of  his  work.  I  have  in  the  last  chapter  endeavoured 
to  place  in  a  stronger  point  of  view  than  before  the  doctrine  of  the 
ability  of  a  country  to  pay  additional  money  taxes,  although  the 
aggregate  money  value  of  the  mass  of  its  commodities  should  fall, 
in  consequence  either  of  the  diminished  quantity  of  labour  required 
to  produce  its  corn  at  home,  by  improvements  in  its  husbandry,  or 
from  its  obtaining  a  part  of  its  corn  at  a  cheaper  price  from  abroad, 
by  means  of  the  exportation  of  its  manufactured  commodities. 
This  consideration  is  of  great  importance,  as  it  regards  the  question 
of  the  policy  of  leaving  unrestricted  the  importation  of  foreign  corn, 
particularly  in  a  country  burthened  with  a  heavy  fixed  money 
taxation,  the  consequence  of  an  immense  National  Debt.  I  have 
endeavoured  to  show  that  the  ability  to  pay  taxes  depends,  not  on 
the  gross  money  value  of  the  mass  of  commodities,  nor  on  the  net 
money  value  of  the  revenues  of  capitalists  and  landlords,  but  on  the 
money  value  of  each  man’s  revenue,  compared  to  the  money  value 
of  the  commodities  which  he  usually  consumes. 


March  26,  1821. 


PREFACE. 


The  produce  of  the  earth — all  that  is  derived  from  its  surface  bv 
the  united  application  of  labour,  machinery,  and  capital,  is  divided 
among  three  classes  of  the  community,  namely,  the  proprietor  of 
the  land,  the  owner  of  the  stock  or  capital  necessary  for  its  culti¬ 
vation,  and  the  labourers  by  whose  industry  it  is  cultivated. 

But  in  different  stages  of  society,  the  proportions  of  the  whole 
produce  of  the  earth  which  will  be  allotted  to  each  of  these  classes, 
under  the  names  of  rent,  profit,  and  wages,  will  be  essentially 
different ;  depending  mainly  on  the  actual  fertility  of  the  soil,  on 
the  accumulation  of  capital  and  population,  and  on  the  skill, 
ingenuity,  and  instruments  employed  in  agriculture. 

To  determine  the  laws  which  regulate  this  distribution,  is  the 
principal  problem  in  Political  Economy :  much  as  the  science  has 
been  improved  by  the  writings  of  Turgot,  Stuart,  Smith,  Say, 
Sismondi,  and  others,  they  afford  very  little  satisfactory  informa¬ 
tion  respecting  the  natural  course  of  rent,  profit,  and  wages. 

In  1815,  Mr  Malthus,  in  his  “  Inquiry  into  the  Nature  and 
Progress  of  Pent,”  and  a  Fellow  of'  University  College,  Oxford,  in 
his  “  Essay  on  the  Application  of  Capital  to  Land,”  presented  to 
the  world,  nearly  at  the  same  moment,  the  true  doctrine  nf  rent. ; 
without  a  knowledge  of  which,  it  is  impossible  to  understand  the 
effect  of  the  progress  of  wealth  on  profits  and  wages,  or  to  trace 
satisfactorily  the  influence  of  taxation  on  different  classes  of  the 
community ;  particularly  when  the  commodities  taxed  are  the 
productions  immediately  derived  from  the  surface  of  the  earth. 
Adam  Smith,  and  the  other  able  writers  to  whom  I  have  alluded, 
not  having  viewed  correctly  the  principles  of  rent,  have,  it  appears 


PREFACE. 


6 

to  me,  overlooked  many  important  truths,  which  can  only  be  dis¬ 
covered  after  the  subject  of  rent  is  thoroughly  understood. 

To  supply  this  deficiency,  abilities  are  required  of  a  far  superior 
cast  to  any  possessed  by  the  writer  of  the  following  pages ;  yet, 
after  having  given  to  this  subject  bis  best  consul ei'ation — after  the 
aid  which  he  has  derived  from  the  works  of  the  above-mentioned 
eminent  writers — and  after  the  valuable  experience  which  a  few 
late  years,  abounding  in  facts,  have  yielded  to  the  present  genera¬ 
tion — it  will  not,  he  trusts,  be  deemed  presumptuous  in  him  to 
state  his  opinions  on  the  laws  of  profits  and  wages,  and  on  the 
operation  of  taxes.  If  the  principles  which  he  deems  correct, 
should  be  found  to  be  so,  it  will  be  for  others,  more  able  than 
himself,  to  trace  them  to  all  their  important  consequences. 

The  writer,  in  combating  received  opinions,  lias  found  it  neces¬ 
sary  to  advert  more  particularly  to  those  passages  in  the  writings 
of  Adam  Smith  from  which  he  sees  reason  to  differ ;  but  he  hopes 
it  will  not,  on  that  account,  be  suspected  that  he  does  not,  in  com¬ 
mon  with  all  those  who  acknowledge  the  importance  of  the  science 
of  Political  Economy,  participate  in  the  admiration  which  the  pro¬ 
found  work  of  this  celebrated  author  so  justly  excites. 

The  same  remark  may  be  applied  to  the  excellent  works  of  INI. 
Say,  who  not  only  was  the  first,  or  among  the  first,  of  continental 
writers,  who  justly  appreciated  and  applied  the  principles  of  Smith, 
and  who  has  done  more  than  all  other  continental  writers  taken 
together,  to  recommend  the  principles  of  that  enlightened  and 
beneficial  system  to  the  nations  of  Europe  ;  but  who  has  succeeded 
in  placing  the  science  in  a  more  logical  and  more  instructive  order : 
and  has  enriched  it  by  several  discussions,  original,  accurate,  and 
profound.*  The  respect,  however,  which  the  author  entertains  for 
the  writings  of  this  gentleman,  has  not  prevented  him  from  com¬ 
menting  with  that  freedom  which  he  thinks  the  interests  of  science 
require,  on  such  passages  of  the  “  Economie  Politique”  as  appeared 
at  variance  with  his  own  ideas. 

*  Cliap.  xv.  Part  i.,  “  Des  Debouches,”  contains,  in  particular,  some  very  important 
principles,  which  I  believe  were  first  explained  by  this  distinguished  writer 


PRINCIPLES  OF  POLITICAL  ECONOMY. 


CHAPTER  I.— ON  VALUE. 


SECTION  I. 

,  The  value  of  a  commodity,  or  the  quantity  of  any  other  commodity  for  which  it  will 
exchange,  depends  on  the  relative  quantity  of  labour  which  is  necessary  for  its  pro-  I 
duction,  and  not  on  the  greater  or  less  compensation  which  is  paid  for  that  labour,  j 

It  has  been  observed  by  Adam  Smith,  that  “  the  word  Value  has 
two  different  meanings,  and  sometimes  expresses  the  utility  of  some 
particular  object,  and  sometimes  the  power  of  purchasing  other 
goods  which  the  possession  of  that  object  conveys.  The  one  may 
be  called  value  in  use :  the  other  value  in  exchange.  The  things,” 
he  continues,  “  which  have  the  greatest  value  in  use,  have  frequently 
little  or  no  value  in  exchange ;  and,  on  the  contrary,  those  which 
have  the  greatest  value  in  exchange,  have  little  or  no  value  in  use.” 
Water  and  air  are  abundantly  useful :  they  are  indeed  indispensable 
to  existence,  yet,  under  ordinary  circumstances,  nothing  can  be  ob¬ 
tained  in  exchange  for  them.  Gold,  on  the  contrary,  though  of  little 
use  compared  with  air  or  water,  will  exchange  for  a  great  quantity 
of  other  goods. 

Utility  then  is  not  the  measure  of  exchangeable  value,  although i. 
it  is  absolutely  essential  to  it.  If_a  commodity  were  in  no  wav 
useful," ^=m  other,  wordspif  it  could  in  no  way  contribute  to  our 
gratification, — it  would  be  destitute  of  exchangeable  value,  now- 
eveFscarce  it  might  be,  or  whatever  quantity  of  labour  might  be 
necessary  to  procure  it. 

Possessing  utility,  commodities  derive  their  exchangeable  value 
from  two  sources  :  from  their  scarcity,  and  from  the  quantity  of 
labour  required  to  obtain  them. 

"'There  are  some  commodities,  the  value  of  which  is  determined 
by  their  scarcity  alone.  No  labour  can  increase  the  quantity  of 
such  goods,  and  therefore  their  value  cannot  be  lowered  by  an  in- 


10 


ON  VALUE. 


creased  supply.  Some  rare  statues  and  pictures,  scarce  books  and 
coins,  wines  of  a  peculiar  quality,  which  can  be  made  only  from 
grapes  grown  on  a  particular  soil,  of  which  there  is  a  very  limited 
quantity,  are  all  of  this  description.  Their  value  is  wholly  indepen¬ 
dent  of  the  quantity  of  labour  originally  necessary  to  produce  them, 
and  varies  with  the  varying  wealth  and  inclinations  of  those  who 
are  desirous  to  possess  them. 

These  commodities,  however,  form  a  very  small  part  of  the  mass 
of  commodities  daily  exchanged  in  the  market.  By  far  the  greatest 
part  of  those  goods  which  are  the  objects  of  desire,  are  procured  by 
labour ;  and  they  may  be  multiplied,  not  in  one  country  alone,  but 
in  many,  almost  without  any  assignable  limit,  if  we  are  disposed  to 
bestow  the  labour  necessary  to  obtain  them. 

In  speaking,  then,  of  commodities,  of  their  exchangeable  value, 
and  of  the  laws  which  regulate  their  relative  prices,  we  mean  always 
such  commodities  only  as  can  be  increased  in  quantity  by  the  exer¬ 
tion  of  human  industry,  and  on  the  production  of  which  competition 
operates  without  restraint. 

In  the  early  stages  of  society,  the  exchangeable  value  of  these 
commodities,  or  the  rule  which  determines  how  much  of  one  shall 
0  be  given  in  exchange  for  another,  depends  almost,  exclusively  on 
the  comparative  quantity  of  labour  expencTecTon  each. 

“  The  real  price  of  every  thing,”  says\Adam  Smith,  “  what 
every  thing  really  costs  to  the  man  who  wantsTcTacquire  it,  is  the 
toil  and  trouble  of  acquiring  it.  What  every  thing  is  really  worth 
to  the  man  who  has  acquired  it,  and  who  wants  to  dispose  of  it,  or 
exchange  it  for  something  else,  is  the  toil  and  trouble  which  it  can 
save  to  himself,  and  which  it  can  impose  upon  other  people.” 
“  Labour  was  the  first  price — the  original  purchase-money  that  was 
paid  for  all  things.”  Again,  “  in  that  early  and  rude  state  of  society, 
which  precedes  both  the  accumulation  of  stock  and  the  appropriation 
of  land,  the  proportion  between  the  quantities  of  labour  necessary 
for  acquiring  different  objects  seems  to  be  the  only  circumstance 
which  can  afford  any  rule  for  exchanging  them  for  one  another.  If, 
among  a  nation  of  hunters,  for  example,  it  usually  cost  twice  the 
labour  to  kill  a  beaver  which  it  does  to  kill  a  deer,  one  beaver  should 
naturally  exchange  for,  or  be  worth  two  deer.  It  is  natural  that 
what  is  usually  the  produce  of  two  days’,  or  two  hours’  labour, 
should  be  worth  double  of  what  is  usually  the  produce  of  one  day’s, 
or  one  hour’s  labour.”  * 

That  this  is  really  the  foundation  of  the  exchangeable  value  of 
all  things,  excepting  those  which  cannot  be  increased  by  human  in¬ 
dustry,  is  a  doctrine  of  the  utmost  importance  in  political  economy ; 
for  from  no  source  do  so  many  errors,  and  so  much  difference  of 
opinion  in  that  science  proceed,  as  from  the  vague  ideas  which  are 
attached  to  the  word  value. 


*  Book  i.  chap.  5. 


ON  VALUE. 


11 


If  the  quantity  of  labour  realized  in  commodities  regulate  their  <- 
exchangeable  value,  every  increase  of  the  quantity  of  labour  must 
augment  the  value  of  that  commodity  on  which  it  is  exercised,  as 
every  diminution  must  lower  it. 

Adam  Smith,  who  so  accurately  defined  the  original  source  of 
exchangeable  value,  and  who  was  bound  in  consistency  to  maintain, 
that  all  things  became  more  or  less  valuable  in  proportion  as  more 
or  less  labour  was  bestowed  on  their  production,  has  himself  erected 
another  standard  measure  of  value,  and  speaks  of  things  being  more 
or  less  valuable,  in  proportion  as  they  will  exchange  for  more  or 
less  of  this  standard  measure.  Sometimes  he  speaks  of  corn,  at 
other  times  of  labour,  as  a  standard  measure ;  not  the  quantity  of 
labour  bestoweaon  'the  production  of  any  object,  but  the  quantity 
which  it  can  command  in  the  market :  as  if  these  were  two  equi¬ 
valent  expressions,  and  as  if,  because  a  man’s  labour  had  become 
doubly  efficient,  and  he  could  therefore  produce  twice  the  quantity 
of  a  commodity,  he  would  necessarily  receive  twice  the  former 
quantity  in  exchange  for  it. 

If  this  indeed  were  true,  if  the  reward  of  the  labourer  were  ^ 
always  in  uroportion  to  what  he  produced,  the  quantity  of  labour 
bestowed  on  a  commodity,  and  the  quantity  of  labour  which  that 
commodity  would  purchase,  would  be  equal,  and  either  might 
accurately  measure  the  variations  of  other  things  ;  but  they  are 
not  equal ;  the  first  is  under  many  circumstances  an  invariable 
standard,  indicating  correctly  the  variations  of  other  things ;  the 
latter  is  subject  to  as  many  fluctuations  as  the  commodities  com¬ 
pared  with  it.  Adam  Smith,  after  most  ably  showing  the  insuffi¬ 
ciency  of  a  variable  medium,  such  as  gold  and  silver,  for  the  purpose 
of  determining  the  varying  value  of  other  things,  has  himself,  by 
fixing  on  corn  or  labour,  chosen  a  medium  r\o  les_s  variable. 

Gold  amB-sifver-aro  no  doubt-subject  to  fluctuations,  from  the 
discovery  of  new  and  more  abundant  mines ;  but  such  discoveries 
are  rare,  and  their  effects,  though  powerful,  are  limited  to  periods 
of  comparatively  short  duration.  They  are  subject  also  to  fluctua¬ 
tion,  from  improvements  in  the  skill  and  machinery  with  which  the 
mines  may  be  worked ;  as  in  consequence  of  such  improvements,  a 
greater  quantity  may  be  obtained  with  the  same  labour.  They  are 
further  subject  to  fluctuation  from  the  decreasing  produce  of  the 
mines,  after  they  have  yielded  a  supply  to  the  world,  for  a  succes¬ 
sion  of  ages.  But  from  which  of  these  sources  of  fluctuation  is- 
&om~.exempted  ?  BOelPhot  that  also  vary,  on  one  hand,  from  im¬ 
provements  in  agriculture,  from  improved  machinery  and  implements 
used  in  husbandry,  as  well  as  from  the  discovery  of  new  tracts  of 
fertile  land,  which  in  other  countries  may  be  taken  into  cultivation, 
and  which  will  affect  the  value  of  corn  in  every  market  where 
importation  is  free?  Is  it  not  on  the  other  hand  subject  to  be 
enhanced  in  value  from  prohibitions  of  importation,  from  increasing 
population  and  wealth,  and  the  greater  difficulty  of  obtaining  the 


12 


ON  VALUE. 


/ 


increased  supplies,  on  account  of  the  additional  quantity  of  labour 
which  the  cultivation  of  inferior  lands  requires  ?  Is  not  the  value 
of  labour  equally  v.nrinhlpi ;  being  not  only  affected,  as  all  other" 
things  are,  by  the  proportion  between  the  supply  and  demand, 
which  uniformly  varies  with  every  change  in  the  condition  of  the 
community,  but  also  by  the  varying  price  of  food  and  other  neces¬ 
saries,  on  which  the  wages  of  labour  are  expended  ? 

In  the  same  country  double  the  quantity  of  labour  may  be 
required  to  produce  a  given  quantity  of  food  and  necessaries  at 
one  time,  that  may  be  necessary  at  another,  and  a  distant  time ; 
yet  the  labourer’s  reward  may  possibly  be  very  little  diminished* 
If  the  labourer’s  wages  at  the  former  period  were  a  certain  quan¬ 
tity  of  food  and  necessaries,  he  probably  could  not  have  subsisted 
if  that  quantity  had  been  reduced.  Food  and  necessaries  in  this 
case  Avill  have  risen  100  per  cent,  if  estimated  by  the  quantity  of 
labour  necessary  to  their  production,  while  they  will  scarcely  have 
increased  in  value,  if  measured  by  the  quantity  of  labour  for  which 
they  will  exchange. 

TliC-smu-nxem ark. may  b e  made  -respecting  two  or  more  countries. 
In  America  and  Poland,  on  the  land  last  taken  into  cultivation,  -si 
year’s  labour  of  any  given  number  of  men,  will  produce  much  more 
corn  than  on  land  similarly  circumstanced  in  England.  Now. 
supposing  all  other  necessaries  to  be  equally  cheap  in  those  three 
countries,  would  it  not  be  a  great  mistake  to  conclude,  that  the 
quantity  of  corn  awarded  to  the  labourer,  would  in  each  country 
be  in  proportion  to  the  facility  of  production  ? 

If  the  shoes  and  clothing  of  the  labourer  could,  by  improvements 
in  machinery,  be  produced  by  one-fourth  of  the  labour  now  neces¬ 
sary  to  their  production,  they  would  probably  fall  75  per  cent.; 
but  so  far  is  it  from  being  true,  that  the  labourer  would  thereby  be 
enabled  permanently  to  consume  four  coats,  or  four  pair  of  shoes, 
instead  of  one,  that  it  is  probable  his  wages  would  in  no  long  time 
)  be  adjusted  by  the  effects  of  competition,  and  the  stimulus  to 
population,  to  the  new  value  of  the  necessaries  on  which  they  were 
expended.  If  these  improvements  extended  to  all  the  objects  of 
the  labourer’s  consumption,  we  should  find  him  probably,  at  the  end 
of  a  very  few  years,  in  possession  of  only  a  small,  if  any,  addition 
to  his  enjoyments,  although  the  exchangeable  value  of  those  com¬ 
modities,  compared  with  any  other  commodity,  in  the  manufacture 
of  which  no  such  improvement  wrere  made,  had  sustained  a  very 
considerable  reduction ;  and  though  they  were  the  produce  of  a 
vepy  considerably  diminished  quantity  of  labour. 

-  It  cannot  then  be  correct,  to  say  with  Adam  Smith,  “  that  as 
labour  may  sometimes  purchase  a  greater,  and  sometimes  a  smaller 
quantity  of  goods,  it  is  their  value  which  varies,  not  that  of  the 
labour  which  purchases  them;”  and  therefore,  “  that  labour  alone 
never  varying  in  its  own  value,  is  alone  the  ultimate  and  real  standard 
by  which  the  value  of  all  commodities  can  at  all  times  arid  places 


ON  VALUE. 


13 


be  estimated  and  compared — but  it  is  correct  to  say,  as  Ada:.. 
Smith  had  previously  said,  “  that  the.  proportion  bet'.>  een  the 
quantities  of  labour  necessary  for  acquiring  different  objects  seems 
to  60-the  only  circumstance  which  cam  afford  any  rule  for  exchang¬ 
ing  themTor  one  another or  in  other  words,  that  it  is  the  com-  ^ 
parative  quantify  oTTommodities  which  labour  will  produce,  that 
determines  their  present  or  past  relative  value,  and  not  the  com¬ 
parative  quantities  of  commodities,  which  are  given  to  the  labourer 
in  exchange^ for  his  labour. 

Two  commodities  vary  in  relative  value,  and  we  wish  to  know 
in  which  the  variation  has  really  taken  place.  If  we  compare  the 
present  value  of  one,  with  shoes,  stockings,  hats,  iron,  sugar,  and 
all  other  commodities,  we  find  that  it  will  exchange  for  precisely 
the  same  quantity  of  all  these  things  as  before.  If  we  compare  the 
other  with  the  same  commodities,  we  find  it  has  varied  with  respect 
to  them  all:  we  may  then  with  great  probability  infer  that  the 
variation  has  been  in  this  commodity,  and  not  in  the  commodities 
with  which  we  have  compared  it.  If  on  examining  still  more 
particularly  into  all  the  circumstances  Nconnected  with  the  produc¬ 
tion  of  these  various  commodities,  we  find  that  precisely  the  sarae^ 
quantity  of  labour  and  capital  are  necessary  to  the  production  of 
the  shoes,  stockings,  hats,  iron,  sugar,  &c. ;  but  that  the  same 
quantity  as  before  is  not  necessary  to  produce  the  single  commoditv 
whose  relative  value  is  altered,  probability  is  changed  into  certainty, 
and  we  are  sure  that  the  variation  is  in  the  single  commodity  i  we 
then  discover  also  the  cause  of  its  variation. 

If  I  found  that  an  ounce  of  gold  would  exchange  for  a  less 
quantity  of  all  the  commodities  above  enumerated,  and  many 
others ;  and  if,  moreover,  I  found  that  by  the  discovery  of  a  new 
and  more  fertile  mine,  or  by  the  employment  of  machinery  to  great 
advantage,  a  given  quantity  of  gold  could  be  obtained  with  a  less 
quantity  of  labour,  I  should  be  justified  in  saying  that  the  cause  of 
the  alteration  in  the  value  of  gold  relatively  to  other  commodities, ' 
was  the  greater  facility  of  its  production,  or  the  smaller  quantity 
of'  labour  necessary  to  obtain  it_  In  like  manner,  if  labour  fell  very  <— 
considerably  in  value,  relatively  to  all  other  things,  and  if  I  found 
that  its  fall  was  in  consequence  of  an  abundant  supply,  encouraged 
by  the  great  facility  with  which  corn,  and  the  other  necessaries  of 
the  labourer,  were  produced,  it  would,  I  apprehend,  be  correct  for 
me  to  say  that  corn  and  necessaries  had  fallen  in  value  in  conse¬ 
quence  of  less  quantity  of  labour  being  necessary  to  produce  them, 
and  that  this  facility  of  providing  for  the  support  of  the  labourer 
had  been  followed  by  a  fall  in  the  value  of  labour.  No,  say  Adam 
Smith  and  Mr  Malthus,  in  the  case  of  the  gold  you  were  correct  in 
calling  its  variation  a  fall  of  its  value,  because  corn  and  labour  had 
not  then  varied ;  and  as  gold  would  command  a  less  quantity  of 
them,  as  well  as  of  all  other  things,  than  before,  it  was  correct  to 
eay  that  all  things  had  remained  stationary,  and  that  gold  only  had 


14 


ON  VALUE. 


Wried ;  but  when  corn  and  labour  fall,  things  which  we  have 
selected  io  be  our  standard  measure  of  value,  notwithstanding  all 
the  variations  to  which  we  acknowledge  they  are  subject,  it  would 
be  highly  improper  to  say  so ;  the  correct  language  will  be  to  say, 
that  corn  and  labour  have  remained  stationary,  and  all  other  things 
have  risen  in  value. 

Now  it  is  against  this  language  that  I  protest.  I  find  that  pre¬ 
cisely,  as  in  the  case  of  the  gold,  the  cause  of  the  variation  between 
corn  and  other  things,  is  the  smaller  quantity  of  labour  necessary 
to  produce  it,  and  therefore,  by  .all  just  reasoning,  I  am  bound  to 
call  the  variation  of  corn  and  labour  a  fall  in  their  value,  and  not  a 
rise  in  the  value  of  the  things  with  which  they  are  compared.  If  I 
have  to  hire  a  labourer  for  a  week,  and  instead  of  ten  shillings  I  pay 
him  eight,  no  variation  having  taken  place  in  the  value  of  money, 
the  labourer  can  probably  obtain  more  food  and  necessaries,  with 
his  eight  shillings,  than  he  before  obtained  for  ten  :  but  this  is 
owing,  not  to  a  rise  in  the  real  value  of  his  wages,  as  stated  by  Adam 
Smith,  and  more  recently  by  Mr  Malthus,  but  to  a  fall  in  the  value 
of  the  things  on  which  his  wages  are  expended,  things  perfectly 
distinct ;  and  yet  for  calling  this  a  fall  in  the  real  value  of  wages,  I 
am  told  that  I  adopt  new  and  unusual  language,  not  reconcileable 
with  the  true  principles  of  the  science.  To  me  it  appears  that  the 
unusual  and,  indeed,  inconsistent  language,  is  that  used  by  my  op¬ 
ponents. 

Suppose  a  labourer  to  be  paid  a  bushel  of  corn  for  a  week’s  work, 
when  the  price  of  corn  is  80s.  per  quarter,  and  that  he  is  paid  a 
bushel  and  a  quarter  when  the  price  falls  to  40s.  Suppose,  too, 
that  he  consumes  half  a  bushel  of  corn  a-week  in  his  own  family, 
and  exchanges  the  remainder  for  other  things,  such  as  fuel,  soap, 
candles,  tea,  sugar,  salt,  &c.  &c. ;  if  the  three-fourths  of  a  bushel 
which  will  remain  to  him,  in  one  case,  cannot  pi'oeure  him  as  much 
of  the  above  commodities  as  half  a  bushel  did  in  the  other1,  which  it 
will  not,  will  labour  have  risen  or  fallen  in  value?  llisen,  Adam 
Smith  must  say,  because  his  standard  is  corn,  and  the  labourer  re¬ 
ceives  more  corn  for  a  week’s  labour.  Fallen,  must  the  same  Adam 
Smith  sa3r,  “  because  the  value  of  a  thing  depends  on  the  power  of 
purchasing  other  goods  which  the  possession  of  that  object  conveys,” 
and  labour  has  a  less  power  of  purchasing  such  other  goods. 


SECTION  II. 


In  speaking^Iio  wever,  of  labour,  as  being  the  foundation  of  all  value, 
and  the  relative  quantity  of  labour  as  almost  exclusively  determin¬ 
ing  the  relative  value  of  commodities,  I  must  not  be  supposed  to  be 


ON  VALUE. 


15 


inattentive  to  the  different  qualities  of  labour,  and  the  difficulty  of 
comparing  an  hour’s  or  a  day’s  labour,  in  one  employment,  with  the 
same  duration  of  labour  in  another.  The  estimation  in  which  dif-i^ 
ferent  qualities  of  labour  are  held,  comes  soon  to  be  adjusted  in  the 
market  with  sufficient  precision  for  all  practical  purposes,  and  de¬ 
pends  much  on  the  comparative  skill  of  the  labourer,  and  intensity 
of  the  labour  perforated.  The  scale,  when  once  formed,  is  liable  to 
little  variation.  If  a  day’s  labour  of  a  working  jeweller  be  more 
valuable  than  a  day’s  labour  of  a  common  labourer,  it  has  long  ago 
been  adjusted,  and  placed  in  its  proper  position  in  the  scale  of  value,* 

In  comparing,  therefore,  the  value  of  the  same  commodity,  at 
different  periods  of  time,  the  consideration  of  the  comparative  skill 
and  intensity  of  labour,  required  for  that  particular  commodity, 
needs  scarcely  to  be  attended  to,  as  it  operates  equally  at  botlij  / 
periods.  One  description  of  labour  at  one  time  is  compared  with 
the  same  description  of  labour  at  another ;  if  a  tenth,  a  fifth,  or  a 
fourth,  has  been  added  or  taken  away,  an  effect  proportioned  to  the 
cause  will  be  produced  on  the  relative  value  of  the  commodity. 

If  a  piece  of  cloth  be  now  of  the  value  of  two  pieces  of  linen,  and 
if,  in  ten  years  hence,  the  ordinary  value  of  a  piece  of  cloth  should 
be  four  pieces  of  linen,  we  may  safely  conclude,  that  either  more 
labour  is  required  to  make  the  cloth,  or  less  to  make  the  linen,  or 
that  both  causes  have  operated. 

As  the  inquiry  to  which  I  wish  to  draw  the  reader’s  attention, 
relates  to  the  effect  of  the  variations  in  the  relative  value  of  com¬ 
modities,  and  not  in  their  absolute  val,ue,  it  will  be  of  little  import¬ 
ance  to  examine  into  the  comparative  degree  of  estimation  in  which 
the  different  kinds  of  human  labour  are  held.  We  may  fairly  con— ^ 
elude,  that  whatever  inequality  there  might  originally  have  been  in 
them,  whatever  the  ingenuity,  skill,  or  time  necessary  for  the  acquire¬ 
ment  of  one  species  of  manual  dexterity  more  than  another,  it  con¬ 
tinues  nearly  the  same  from  one  generation  to  another ;  or  at  least, 
that-tho— variation  is  very  inconsiderable  from  year  to  year,  and 
therefore,  can  have  little  effect,  for  short  perioja.  on  the  relative 
vahie-of  commodities. 

‘-IJUie-proportion  between  the  different  rates  both  of  wages  and 


*  “  But  though  labour  be  the  real  measure  of  the  exchangeable  value  of  all  com¬ 
modities,  it  is  not  that  by  which  their  value  is  commonly  estimated.  It  is  often  diffi¬ 
cult  to  ascertain  the  proportion  between  two  different  quantities  of  labour.  The  time 
spent  in  two  different  sorts  of  work  will  not  always  alone  determine  this  proportion. 
The  different  degrees  of  hardship  endured,  and  of  ingenuity  exercised,  must  likewise 
be  taken  into  account.  There  may  be  more  labour  in  an  hour’s  hard  work,  than  in 
two  hours’  easy  business ;  or,  in  an  hour’s  application  to  a  trade,  which  it  costs  ten 
years’  labour  to  learn,  than  in  a  month’s  industry  at  an  ordinary  and  obvious  employ¬ 
ment.  But  it  is  not  easy  to  find  any  accurate  measure,  either  of  hardship  or  ingenuity. 
In  exchanging,  indeed,  the  different  productions  of  different  sorts  of  labour  for  one 
another,  some  allowance  is  commonly  made  for  both.  It  is  adjusted,  however,  not  by 
any  accurate  measure,  but  by  the  higgling  and  bargaining  of  the  market,  according  to 
that  sort  of  rough  equality,  which,  though  not  exact,  is  sufficient  for  carrying  on  the 
business  of  common  life.” — Wealth  of  Nations ,  book  i.  chap.  10. 


16 


ON  VALUE. 


profit  in  the  different  employments  of  labour  and  stock,  seems  not 
to  be  much  affected,  as  has  already  been  observed,  by  the  riches  or 
poverty,  the  advancing,  stationary,  or  declining  state  of  the  society. 
Such  revolutions  in  the  public  welfare,  though  they  affect  the  gene¬ 
ral  rates  both  of  wages  and  profit,  must  in  the  end  affect  them 
equally  in  all  different  employments.  The  proportion  between  them 
therefore  must  remain  the  same,  and  cannot  well  be  altei’ed,  at  least 
tor  any  considerable  time,  by  any  such  revolutions.”* 


SECTION  III. 

Not  only  the  labour  applied  immediately  to  commodities  affect  their  value,  hut  the 
labour  also  which  is  bestowed  on  the  implements,  tools,  and  buildings,  with  which 
such  labour  is  assisted. 

Even  in  that  early  state  to  which  Adam  Smith  refers,  some  capital, 
though  possibly  made  and  accumulated  by  the  hunter  himself,  would 
be  necessary  to  enable  him  to  kill  his  game.  Without  some  weapon, 
neither  the  beaver  nor  the  deer  could  be  destroyed,  and  therefore 
the  value  of  these  animals  would  be  regulated,  not  solely  by  the 
time  and  labour  necessary  to  their  destruction,  but  also  by  the  time 
and  labour  necessary  for  providing  the  hunter’s  capital,  the  weapon, 
by  the  aid  of  which  their  destruction  was  effected. 

/  Suppose  the  weapon  necessary  to  kill  the  beaver,  was  constructed 
with  much  more  labour  than  that  necessary  to  kill'  the  deer,  on 
account  of  the  greater  difficulty  of  approaching  near  to  the  former 
animal,  and  the  consequent  necessity  of  its  being  more  true  to  its 
mark ;  one  beaver  would  naturally  be  of  more  value  than  two  deer, 
and  precisely  for  this  reason,  that  more  labour  would,  on  the  whole, 
be  necessary  to  its  destruction.  Or  suppose  that  the  same  quantity 
of  labour  was  necessary  to  make  both  weapons,  but  that  they  were 
of  very  unequal  durability  ;  of  the  durable  implement  only  a  small 
portion  of  its  value  would  be  transferred  to  the  commodity,  a  much 
greater  portion  of  the  value  of  the  less  durable  implement  would  be 
realized  in  the  commodity  which  it  contributed  to  produce. 

All  the  implements  necessary  to  kill  the  beaver  and  deer  might 
belong  to  one  class  of  men,  and  the  labour  employed  in  their 
destruction  might  be  furnished  by  another  class ;  still,  their  com- 
j  parative  prices  would  be  in  proportion  to  the  actual  labour  bestowed, 
both  on  the  formation  of  the  capital,  and  on  the  destruction  of  the 
animals.  Under  different  circumstances  of  plenty  or  scarcity  of 
capital,  as  compared  with  labour,  under  different  circumstances  of 
plenty  or  scarcity  of  the  food  and  necessaries  essential  to  the  sup¬ 
port  of  men,  those  who  furnished  an  equal  value  of  capital  for  either 
one  employment  or  for  the  other,  might  have  a  half,  a  fourth,  or 


*  Wealth  of  Nationi?,  book  i.  chap.  10. 


ON  VALUE. 


17 


an  eighth  of  the  produce  obtained,  the  remainder  being  paid  as 
wages  to  those  who  furnished  the  labour ;  yet  this  division  could 
not  affect  the  relative  value  of  these  commodities,  since  whether  ^ 
the  profits  of  capital  were  greater  or  less,  whether  they  were  50, 
20,  or  10  per  cent.,  or  whether  the  wages  of  labour  were  high  or 
low,  they  would  operate  equally  on  both  employments. 

If  we  suppose  the  occupations  of  the  society  extended,  that  some 
provide  canoes  and  tackle  necessary  for  fishing,  others  the  seed 
and  rude  machinery  first  used  in  agriculture,  still  the  same  principle 
would  hold  true,  that  the  exchangeable  value  of  the  commodities  ^ 
produced  would  be  in  proportion  to  the  labour  bestowed  on  their 
production ;  not  on  their  immediate  production  only,  but  on  all 
those  implements  or  machines  required  to  give  effect  to  the  par¬ 
ticular  labour  to  which  they  were  applied. 

If  we  look  to  a  state  of  society  in  which  greater  improvements 
have  been  made,  and  in  which  arts  and  commerce  flourish,  we  shall 
still  find  that  commodities  vary  in  value  conformably  with  this 
principle  :  in  estimating  the  exchangeable  value  of  stockings,  foi 
example,  we  shall  find  that  their  value,  comparatively  with  other 
things,  depends  on  the  total  quantity  of  labour  necessary  to  manu¬ 
facture  them,  and  bring  them  to  market.  First,  there  is  the  labour 
necessary  to  cultivate  the  land  on  which  the  raw  cotton  is  grown  : 
secondly,  the  labour  of  conveying  the  cotton  to  the  country  where 
the  stockings  are  to  be  manufactured,  which  includes  a  portion  of 
the  labour  bestowed  in  building  the  ship  in  which  it  is  conveyed, 
and  which  is  charged  in  the  freight  of  the  goods  ;  thirdly,  the 
labour  of  the  spinner  and  weaver  ;  fourthly,  a  portion  of  the  labour 
of  the  engineer,  smith,  and  carpenter,  who  erected  the  buildings 
and  machinery,  by  the  help  of  which  they  are  made  ;  fifthly,  the 
labour  of  the  retail  dealer,  and  of  many  others,  whom  it  is  unne¬ 
cessary  further  to  particularize.  The  aggregate  sum  of  these 
various  kinds  of  labour,  determines  the  quantity  of  other  things  for 
which  these  stockings  will  exchange,  while  the  same  consideration 
of  the  various  quantities  of  labour  which  have  been  bestowed  on 
those  other  things,  will  equally  govern  the  portion  of  them  which 
will  be  given  for  the  stockings. 

To  convince  ourselves  that  this  is  the  real  foundation  of  ex¬ 
changeable  value,  let  us  suppose  any  improvement  to  be  made  in 
the  means  of  abridging  labour  in  any  one  of  the  various  processes 
through  which  the  raw  cotton  must  pass,  before  the  manufactured 
stockings  come  to  the  market,  to  be  exchanged  for  other  things  ; 
and  observe  the  effects  which  will  follow.  If  fewer  men  were 
required  to  cultivate  the  raw  cotton,  or  if  fewer  sailors  were  em¬ 
ployed  in  navigating,  or  shipwrights  in  constructing  the  ship,  in 
which  it  was  conveyed  to  us  ;  if  fewer  hands  were  employed  in 
raising  the  buildings  and  machinery,  or  if  these,  when  raised,  were 
rendered  more  efficient,  the  stockings  would  inevitably  fall  in  value, 
and  consequently  command  less  of  other  things.  They  would  fall, 

n 


18 


ON  VALUE. 


because  a  less  quantity  of  labour  was  necessary  to  their  production, 
and  would  therefore  exchange  for  a  smaller  quantity  of  those  things 
in  which  no  such  abridgment  of  labour  had  been  made. 

V  '  Economy  in  the  use  of  labour  never  fails  to  reduce  the  relative 
value  of  a  commodity,  whether  the  saving  be  in  the  labour  neces¬ 
sary  to  the  manufacture  of  the  commodity  itself,  or  in  that  neces¬ 
sary  to  the  formation  of  the  capital,  by  the  aid  of  which  it  is 
produced.  In  either  case  the  price  of  stockings  would  fall,  whether 
there  were  fewer  men  employed  as  bleachers,  spinners,  and  weavers, 
persons  immediately  necessary  to  their  manufacture  ;  or  as  sailors, 
carriers,  engineers,  and  smiths,  persons  more  indirectly  concerned. 
In  the  one  case,  the  whole  saving  of  labour  would  fall  on  the 
stockings,  because  that  portion  of  labour  was  wholly  confined  to 
the  stockings  ;  in  the  other,  a  portion  only  would  fall  on  the 
stockings,  the  remainder  being  applied  to  all  those  other  commo¬ 
dities,  to  the  production  of  which  the  buildings,  machinery,  and 
carriage  were  subservient 

Suppose  that,  in  the  early  stages  of  society,  the  bows  and  arrows 
of  the  hunter  were  of  equal  value,  and  of  equal  durability,  with  the 
canoe  and  implements  of  the  fisherman,  both  being  the  produce  of 
the  same  quantity  of  labour.  Under  such  circumstances  the  value 
of  the  deer,  the  produce  of  the  hunter’s  day’s  labour,  would  be 
exactly  equal  to  the  value  of  the  fish,  the  produce  of  the  fisherman’s 
i  (day's  labour.  The  comparative  value  of  the  fish  and  the  game 
^Hvould  be  entirely  regulated  by  the  quantity  of  labour  realized  in 
each  ;  whatever  might  be  the  quantity  of  production,  or  however 
high  or  low  general  wages  or  profits  might  be.  If,  for  example,  the 
canoes  and  implements  of  the  fisherman  were  of  the  value  of  100/., 
and  were  calculated  to  last  for  ten  years,  and  he  employed  ten  men, 
whose  annual  labour  cost  100/.,  and  who  in  one  day  obtained  by 
their  labour  twenty  salmon  :  If  the  weapons  employed  by  the 
hunter  were  also  of  100/.  value,  and  calculated  to  last  ten  years, 
and  if  he  also  employed  ten  men,  whose  annual  labour  cost  100/., 
%  and  who  in  one  day  procured  him  ten  deer ;  then  the  natural  price 
^  of  a  deer  woidd  be  two  salmon,  whether  the  proportion  of  the 
whole  produce  bestowed  on  the  men  who  obtained  it  were  large 
^  or  small.  The  proportion  which  might  be  paid  for  wages  U  of  the 
(  utmost  importance  in  the  question  of  profits ;  for  it  must  at  once 
be  seen,  that  profits  would  be  high  or  low,  exactly  in  proportion  as 
wages  were  low  or  high ;  but  it  could  not  in  the  least  affect  the 
relative  value  of  fish  and  game,  as  wages  would  be  high  or  low  at 
the  same  time  in  both  occupations.  If  the  hunter  urged  the  plea 
of  his  paying  a  large  proportion,  or  the  value  of  a  large  proportion 
of  his  game  for  wages,  as  an  inducement  to  the  fisherman  to  give 
him  more  fish  in  exchange  for  his  game,  the  latter  would  state  that 
he  was  equally  affected  by  the  same  cause  ;  and  therefore,  under  all 
vai'iations  of  wages  and  profits,  under  all  the  effects  of  accumula¬ 
tion  of  capital,  as  long  as  they  continued  by  a  day’s  labour  to 


ON  VALUE. 


19 


obtain  respectively  the  same  quantity  of  fish,  and  the  same  quantity 
of  game,  the  natural  rate  of  exchange  would  be  one  deer  for  two 
salmon. 

If  with  the  same  quantity  of  labour  a  less  quantity  of  fish,  or  a 
_greater  quantity  of  game  were  obtained,  the  value  of  fish  would 
rise  in  comparison  with  that  of  game.  If,  on  the  contrary,  with 
the  same  quantity  of  labour  a  less  quantity  of  game,  or  a  greater 
quantity  of  fish  was  obtained,  game  would  rise  in  comparison 
with  fish. 

If  there  were  any  other  commodity  which  was  invariable  in  its 
value,  we  should  be  able  to  ascertain,  by  comparing  the  value  of 
fish  and  game  with  this  commodity,  how  much  of  the  variation 
w as  to  be  attributed  to  a  cause  which  affected  the  value  of  fish,  and 
how  much  to  a  cause  which  affected  the  value  of  game. 

Suppose  money  to  be  that  commodity.  If  a  salmon  were  worth 
1/.  and  a  deer  21.,  one  deer  ,wouId  -be  worth  two  salmon.  But 
a  deer  might  become  of  the  value  of  three  salmon,  for  more  labour 
might  be  required  to  obtain  the  deer,  or  less  to  get  the  salmon,  or 
both  these  causes  might  operate  at  the  same  time.  If  we  had  this 
invariable  standard,  we  might  easilv  ascertain  in  what  degree  either 
of  these  causes  operated.  If  salmon  continued  to  sell  for  1/. 
whilst  deer  rose  to  3/.,  we  might  conclude  that  more  labour  was 
required  to  obtain  the  deer.  If  deer  continued  at  the  same  price 
of  '21.  and  salmon  sold  for  13s.  4d.,  we  might  then  be  sure  that 
less  labour  was  required  to  obtain  the  salmon  ;  and  if  deer  rose 
to  21.  10s.  and  salmon  fell  to  lfis.  8d.,  we  should  be  convinced  that 
both  causes  had  operated  in  producing  the  alteration  of  the  relative 
value  of  these  commodities. 

No  alteration  in  the  wages  of  labour  could  produce  anv  alteratioif^' 
in  the  relative  value  of  these  commodities ;  for  suppose  them  to 
rise,  no  greater  quantity  of  labour  would  be  required  in  any  of  these 
occupations,  but  it  would  be  paid  for  at  a  higher  price,  and  the  same^- 
reasons  which  should  make  the  hunter  and  fisherman  endeavour  to 


raise  the  value  of  their  game  and  fish, 
mine  to  raise  the  value  of  his  gold. 


would  cause  the  owner  of  the 
This  inducement  acting  with*" 
the  same  force  on  all  these  three  occupations,  and  the  relative 
situation  of  those  engaged  in  them  being  the  same  before  and  after 
the  rise  of  wages,  the  relative  value  of  game,  fish,  and  gold  would 
continue  unaltered.  Wages  might  rise  twenty  per  cent.,  and  profits 
consequently  fall  in  a  greater  or  less  proportion,  without  occasioning 
the  least  alteration  in  the  relative  value  of  these  commodities. 

Now  suppose  that,  with  the  same  labour  and  fixed  capital,  more 
fish  could  be  produced,  but  no  more  gold  or  game,  the  relative  value 
offish  would  fall  in  comparison  with  gold  or  game.  If,  instead  of 
twenty  salmon,  twenty-five  were  the  produce  of  one  day’s  labour, 
the  price  of  a  salmon  would  be  sixteen  shillings  instead  of  a  pound, 
and  two  salmon  and  a  half,  instead  of  two  salmon,  would  be  given 
in  exchange  for  one  deer,  but  the  price  of  deer  would  continue  at 


20 


ON  VALUE. 


21.  as  before.  In  the  same  manner,  if  fewer  fish  could  be  obtained 
with  the  same  capital  and  labour,  fish  would  rise  in  comparative 
value.  Fish  then  would  rise  or  fall  in  exchangeable  value,  only 
because  more  or  less  labour  was  required  to  obtain  a  given  quantity ; 
and  it  never  could  rise  or  fall  beyond  the  proportion  of  the  increased 
or  diminished  quantity  of  labour  required. 

If  we  had  then  an  invariable  standard,  by  which  we  could  mea¬ 
sure  the  variation  in  other  commodities,  we  should  find  that  the 
utmost  limit  to  which  they  could  permanently  rise,  if  produced 
under  the  circumstances  supposed,  was  proportioned  to  the  addi¬ 
tional  quantity  of  labour  required  for  their  production  ;  and  that 
unless  more  labour  were  required  for  their  production,  they  could 
not  rise  in  any  degree  whatever.  A  rise  of  wages  would  not  raise 
them  in  money  value,  nor  relatively  to  any  other  commodities,  the 
production  of  which  required  no  additional  quantity  of  labour,  Avhich 
employed  the  same  proportion  of  fixed  and  circulating  capital,  and 
fixed  capital  of  the  same  durability.  If  more  or  less  labour  were 

(required  in  the  production  of  the  other  commodity,  we  have  already 
stated  that  this  will  immediately  occasion  an  alteration  in  its  relative 
vralue,  but  such  alteration  is  OAving  to  the  altered  quantity  of  requi¬ 
site  labour,  and  not  to  the  rise  of  Avages. 


SECTION  IV. 

The  principle  that  the  quantity  of  labour  bestowed  on  the  production  of  commoditic.? 
regulates  their  relative  value,  considerably  modified  by  the  employment  of  machinery 
and  other  fixed  and  durable  capital. 

In  the  former  section  Ave  have  supposed  the  implements  and  Aveapons 
necessary  to  kill  the  deer  and  salmon  to  be  equally  durable,  and  to 
be  the  result  of  the  same  quantity  of  labour,  and  Ave  have  seen  that 
the  variations  in  the  relative  value  of  deer  and  salmon  depended 
solely  on  the  varying  quantities  of  labour  necessary  to  obtain  them, 
-^but  in  every  state  of  society,  the  tools,  implements,  buildings* 
and  machinery  employed  in  different  trades  may  be  of  various 
degrees  of  durability/ and  may  require  different  portions  of  labour 
to  produce  them.  The  proportions,  too,  in  Avhich  the  capital  that 
is  to  support  labour,  and  the  capital  that  is  invested  in  tools,  ma¬ 
chinery,  and  building's,  may  be  variously  combined.  This  difference 
in  the  degree  of  durability  of  fixed  capital,  and  this  variety  in  the 
proportions  in  which  the  tAvo  sorts  of  capital  may  be  combined, 
introduce  another  cause,  besides  the  greater  or  less  quantity  of 
labour  necessary  to  produce  commodities,  for  the  variations  in  their 
relative  value— this  cause  is  the  rise  or  fall  in  the  value  of  labour. 

The  food  and  clothing  consumed  by  the  labourer,  the  buildings 
in  Avhich  he  Avorks,  the  implements  Avith  which  his  labour  is  assisted, 
arc  all  of  a  perishable  nature  There  is,  hoAvever,  a  vast  difference 


ON  VALUE. 


21 


in  the  time  for  which  these  different  capitals  will  endure  :  a  steam- 
engine  will  last  longer  than  a  ship,  a  ship  than  the  clothing  of  the 
labourer,  and  the  clothing  of  the  labourer  longer  than  the  food 
which  he  consumes. 

Aecording_as- capital  is  rapidly  perishable,  and  requires  to  be 
frequently  reproduced,  or  is  of  slow  consumption,  it  is  classed  under 
the  heads  of  circulating,  or  of  fixed  capital.*  A  brewer,  whose 
buildings  and  machinery  are  valuaEle  and  durable,  is  said  to  employ 
a  large  portion  of  fixed  capital :  on  the  contrary,  a  shoemaker,  whose 
capital  is  chiefly  employed  in  the  payment  of  wages,  which  are 
expended  on  food  and  clothing,  commodities  more  perishable  than 
buildings  and  machinery,  is  said  to  employ  a  large  proportion  of  his 
capital  as  circulating  capital. 

It  is  also  to  be  observed  that  the  circulating  capital  may  circulate, 
or  be  returned  to  its  employer,  in  very  unequal  times.  The  wheat 
bought  by  a  farmer  to  sow  is  comparatively  a  fixed  capital  to  the 
wheat  purchased  by  a  baker  to  make  into  loaves.  One  leaves  it  in 
the  ground,  and  can  obtain  no  return  for  a  year ;  the  other  can  get 
it  ground  into  flour,  sell  it  as  bread  to  his  customers,  and  have  his 
capital  free  to  renew  the  same,  or  commence  any  other  employment 
in  a  week. 

Two  trades  then  may  employ  the  same  amount  of  capital ;  but  it 
may  be  very  differently  divided  with  respect  to  the  portion  which 
is  fixed,  and  that  which  is  circulating. 

In  one  trade  very  little  capital  may  be  employed  as  circulating 
capital,  that  is  to  say,  in  the  support  of  labour — it  may  be  princi¬ 
pally  invested  in  machinery,  implements,  buildings,  &c.,  capital  of 
a  comparatively  fixed  and  durable  character.  In  another  trade  then 
same  amount  of  capital  may  be  used,  but  it  may  be  chiefly  employed 
in  the  support  of  labour,  and  very  little  may  fie  invested  in  imple¬ 
ments,  machines,  and  buildings.  A  rise  in  the  wages  of  labour 
cannot  fail  to  affect  unequally  commodities  produced  under  such 
different  circurnstTmoesr - 

Again,  two  manufacturers  may  employ  the  same  amount  of  fixed, 
and  the  same  amount  of  circulating  capital ;  but  the  durability  of 
their  fixed  capitals  may  be  very  unequal.  One  may  have  steam- 
engines  of  the  value  of  10,000/.,  the  other,  ships  of  the  same  value. 

If  men  employed  no  machinery  in  production  but  labour  onl ’ff 
and  were  all  the  same  length  of  time  before  they  brought  their 
commodities  to  market,  the  exchangeable  value  of  their  goods  would 
be  precisely  in  proportion  to»the  quantity  of  labour  employed. 

If  they  employed  fixed  capital  of  the  same  value  and  of  the  same4 
durability,  then,  too,  the  value  of  the  commodities  produced  would 
be  the  same,  and  they  would  vary  with  the  greater  or  less  quantity 
of  labour  employed  on  their  production. 

But  although  commodities  produced  under  similar  circumstances 

*  A  division  not  essential,  and  in  which  the  line  of  demarcation  cannot  he  accu¬ 
rately  drawn. 


22 


ON  VALUE. 


would  not  vary  with  respect,  to  each  other,  from  any  cause  but  an 
addition  or  diminution  of  the  quantity  of  labour  necessary  to  produce 
one  or  other  of  them,  yet,  compared  with  others  not  produced  with 
the  same  proportionate  quantity  of  fixed  capital,  they  would  vary 
from  the  other  cause  also  which  I  have  before  mentioned,  namely,  a 
rise  in  the  value  of  labour,  although  neither  more  nor  less  labour 
were  employed  in  the  production  of  either  of  them.  Barley  and 
oats  would  continue  to  bear  the  same  relation  to  each  other  under 
any  variation  of  wages.  kQotton  goods  and  cloth  would  do  the 
same,  if  they  also  were  produced  under  circumstances  precisely 
similar  to  each  other,  but  yet  with  a  rise  or  fall  of  wages,  barley 
might  be  more  or  less  valuable  compared  with  cotton  goods,  and 
oats  compared  with  cloth,  j 

Suppose  two  men  employ  one  hundred  men  each  for  a  year  in  the 
construction  of  two  machines,  and  another  man  employs  the  same 
number  of  men  in  cultivating  corn,  each  of  the  machines  at  the  end 
of  the  year  will  be  of  the  same  value  as  the  corn,  for  they  will  each 
be  produced  by  the  same  quantity  of  labour.  Suppose  one  of  the 
owners  of  one  of  the  machines  to  employ  it,  with  the  assistance  of 
one  hundred  men,  the  following  year  in  making  cloth,  and  the  owner 
of  the  other  machine  to  employ  his  also,  with  the  assistance  likewise 
of  one  hundred  men,  in  making  cotton  goods,  while  the  farmer 
continues  to  employ  one  hundred  men  as  before  in  the  cultivation 
of  corn.  During  the  second  year  they  will  all  have  employed  the 
same  quantity  of  labour,  but  the  goods  and  machine  together  of  the 
clothier,  and  also  of  the  cotton  manufacturer,  will  be  the  result  of 
the  labour  of  two  hundred  men,  employed  for  a  year ;  or,  rather,  of 
the  labour  of  one  hundred  men  for  two  years  ;  whereas  the  corn 
will  be  produced  by  the  labour  of  one  hundred  men  for  one  year, 
consequently  if  the  corn  be  of  the  value  of  500/.,  the  machine  and 
cloth  of  the  clothier  together  ought  to  be  of  the  value  of  1000/., 
and  the  machine  and  cotton  goods  of  the  cotton  manufacturer  ought 
to  be  also  of  twice  the  value  of  the  corn.  But  they  will  be  of  more 
than  twice  the  value  of  the  corn,  for  the.profit  on  the  clothier’s  and 
cotton  manufacturer’s  capital  for  the  first  year  has  been  added  to 
their  capitals,  while  that  of  the  farmer  has  been  expended  and 
enjoyed.  vOn  account  then  of  the  different  degrees  of  durability  of 
their  capitals,  or,  which  is  the  same  thing,  on  account  of  the  time 
which  must  elapse  before  one  set  of  commodities  can  be  brought  to 
market,  they  will  be  valuable,  not  exactly  in  proportion  to  the 
quantity  of  labour  bestowed  on  them, — they  will  not  be  as  two  to 
one,  but  something  more,  to  compensate  for  the  greater  length  of 
time  which  must  elapse  before  the  most  valuable  can  be  brought  to 
market. 

Suppose  that  for  the  labour  of  each  workman  50/.  per  annum 
were  paid,  or  that  5000/.  capital  were  employed  and  profits  were 
10  per  cent.,  the  value  of  each  of  the  machines  as  well  as  of  the 
corn,  at  the  end  of  the  first  year,  would  be  5,500/.  The  second 


ON  VALUE. 


23 


year  the  manufacturers  and  farmer  will  again  employ  5000/.  each 
in  the  support  of  labour,  and  will  therefore  again  sell  their  goods  for 
5,500/.  ;  but  the  men  using  the  machines,  to  be  on  a  par  with  the 
farmer,  must  not  only  obtain  5,500/.  for  the  equal  capitals  of 
5000/.  employed  on  labour,  but  they  must  obtain  a  further  sum  of 
550/.  for  the  profit  on  5,500/.,  which  they  have  invested  in 
machinery,  and  consequently  their  goods  must  sell  for  6,050/. 
H  ere,  then,  are  capitalists  employing  precisely  the  same  quantity 
of  labour  annually  on  the  production  of  their  commodities,  and  yet 
the  goods  they  produce  differ  in  value  on  account  of  the  different 
quantities  of  fixed  capital,  or  accumulated  labour,  employed  by  each 
respectively.  The  cloth  and  cotton  goods  are  of  the  same  value, 
because  they  are  the  produce  of  equal  quantities  of  labour,  and 
equal  quantities  of  fixed  capital ;  but  corn  is  not  of  the  same  value 
as  these  commodities,  because  it  is  produced,  as  far  as  regards  fixed 
capital,  under  different  circumstances. 

But  how  will  their  relative  value  be  affected  by  a  rise  in  the 
value  of  labour  ?  It  is  evident  that  the  relative  values  of  cloth  and 
cotton  goods  will  undergo  no  change,  for  what  affectG  one  must 
equally  affect  the  other,  under  the  circumstances  supposed  ;  neither 
M  ill  the  relative  values  of  wheat  and  barley  undergo  any  change,  for 
they  are  produced  under  the  same  circumstances  as  far  as  fixed  and 
circulating  capital  are  concerned  ;  but  the  relative  value  of  corn  to 
cloth,  or  to  cotton  goods,  must  be  altered  by  a  rise  of  labour. 

There  can  be  no  rise  in  the  value  of  labour  without  a  fall  of 
profits.  If  the  corn  is  to  be  divided-  between  the  farmer  and  the 
labourer,  the  larger  the  proportion  that  is  given  to  the  latter,  the 
less  M’ill  remain  for  the  former.  So,  if  cloth  or  cotton  goods  be 
divided  between  the  workman  and  his  employer,  the  larger  the 
proportion  given  to  the  former,  the  less  remains  for  the  latter. 
Suppose  then,  that  owing  to  a  rise  of  w'ages,  profits  fall  from  10  to 
0  per  cent.,  instead  of  adding  550/.  to  the  common  price  of  their 
goods  (to  5,500/.)  for  the  profits  on  their  fixed  capital,  the  manu¬ 
facturers  u7ould  add  only  0  per  cent,  on  that  sum,  or  495/.,  conse¬ 
quently  the  price  would  be  5,995/.,'  instead  of  6,050/.  As- the 
corn  would  continue  to  sell  for  5,500/.,  the  manufactured  goods  in 
which  more  fixed  capital  w7as  employed,  would  fall  relatively  to  corn 
or  to  any  other  goods  in  which  a  less  portion  of  fixed  capital 
entered.  The  degree  of  alteration  in  the  relative  value  of  goods,  oir 
account  of  a  rise  or  fall  of  labour,  would  depend  on  the  proportion 
which  the  fixed  capital  bore  to  the  whole  capital  employed-  All 
commodities  which  are  produced  by  very  valuable  machinery,  or  in 
very  valuable  buildings,  or  which  require  a  great  length  of  time 
before  they  can  be  brought  to  market,  would  fall  in  relative  value, 
while  all  those  which  were  chiefly  produced  by  labour,  or  which 
would  be  speedily  brought  to  market,  would  rise  in  relative  value. 

The  reader,  however,  should  remark,  that  this  cause  of  the 
variation  of  commodities  is  comparatively  slight  in  its  effects- 


24 


ON  VALUE. 


With  sucli  a  rise  of  wages  as  should  occasion  a  fall  of  1  per  cent, 
in  profits,  goods  produced  under  the  circumstances  I  have  sup¬ 
posed,  vary  in  relative  value  only  1  per  cent. ;  they  fall  with  so 
great  a  foil  of  profits  from  6,050/.  to  5,995/.  The  greatest  effects 
which  could  be  produced  on  the  relative  prices  of  these  goods  from 
a  rise  of  wages,  could  not  exceed  6  or  7  per  cent ;  for  profits 
could  not,  probably,  under  any  circumstances,  admit  of  a  greater 
general  and  permanent  depression  than  to  that  amount. 

Not  so  with  the  other  great  cause  of  the  variation  in  the  value 
of  commodities,  namely,  the  increase  or  diminution  in  the  quantity 
of  labour  necessary  to  produce  them.  If  to  produce  the  corn, 
eighty,  instead  of  one  hundred  men,  should  be  required,  the  value 
of  the  corn  would  fall  20  per  cent.,  or  from  5,500/.  to  4,400/.  If 
to  produce  the  cloth,  the  labour  of  eighty  instead  of  one  hundred 
men  would  suffice,  cloth  would  fall  from  6,050/.  to  4,950/.  An 
?  alteration  in  the  permanent  rate  of  profits,  to  any  great  amount,  is 
I  the  effect  of  causes  which  do  not  operate  but  in  the  course  of  years, 
\  whereas  alterations  in  the  quantity  of  labour  necessary  to  produce 
.’commodities  are  of  daily  occurrence.  Every  improvement  in 
machinery,  in  tools,  in  buildings,  in  raising  the  raw  material,  saves 
labour,  and  enables  us  to  produce  the  commodity  to  which  the 
improvement  is  applied  with  more  facility,  and  consequently  its 
.  value  alters.  In  estimating,  then,  the  causes  of  the  variations  in 
/jthe  value  of  commodities,  although  it  would  be  wrong  wholly  to 
I  omit  the  consideration  of  the  effect  produced  by  a  rise  or  fail  of 
;  labour,  it  would  be  equally  incorrect  to  attach  much  importance  to 
'it;  and  consequently,  in  the  subsequent  part  of  this  work,  though 
I  shall  occasionally  refer  to  this  cause  of  variation,  I  shall  consider 
all  the  great  variations  which  take  place  in  the  relative  value  of  com¬ 
modities  to  be  produced  by  the  greater  or  less  quantity  of  labour 
which  may  be  required  from  time  to  time  to  produce  them. 

It  is  hardly  necessary  to  say,  that  commodities  which  have  the 
same  quantity  of  labour  bestowed  on  their  production,  will  differ  in 
exchangeable  value,  if  they  cannot  be  brought  to  market  in  the 
same  time. 

Suppose  I  employ  twenty  men  at  an  expense  of  1000/.  for  a 
year  in  the  production  of  a  commodity,  and  at  the  end  of  the  year 
I  employ  twenty  men  again  for  another  year,  at  a  further  expense 
of  1000/.  in  finishing  or  perfecting  the  same  commodity,  and  that 
I  bring  it  to  market  at  the  end  of  two  years,  if  profits  be  10  per 
cent.,  my  commodity  must  sell  for  2,310/. ;  for  I  have  employed 
1000/.  capital  for  one  year,  and  2,100/.  capital  for  one  year  more. 
Another  man  employs  precisely  the  same  quantity  of  labour,  but 
he  employs  it  all  in  the  first  year ;  he  employs  forty  men  at  an 
expense  of  2000/.,  and  at  the  end  of  the  first  year  he  sells  it  with 
10  per  cent,  profit,  or  for  2200/.  Here,  then,  are  two  commo¬ 
dities  having  precisely  the  same  quantity  of  labour  bestowed  on 
them,  one  of  which  sells  for  2,310/. — the  other  for  2,200 Z. 


ON  VALUE. 


25 


This  case  appears  to  differ  from  the  last,  but  is,  in  fact,  the  same. 
In  both  cases  the  superior  price  of  one  commodity  is  owing  to  the 
greater  length  of  time  which  must  elapse  before  it  can  be  brought 
to  market.  In  the  former  case  the  machinery  and  cloth  were  more 
than  double  the  value  of  the  corn,  although  only  double  the  quan¬ 
tity  of  labour  was  bestowed  on  them.  In  the  second  case,  one 
commodity  is  more  valuable  than  the  other,  although  no  more 
labour  was  employed  on  its  production.  The  difference  in  value 
arises  in  both  cases  from  the  profits  being  accumulated  as  capital,  - 
and  is  only  a  just  compensation  for  the  time  that  the  profits  were 
withheld. 

It  appears,  then,  that  the  division  of  capital  into  different  propor¬ 
tions  of  fixed  and  circulating  capital,  employed  in  different  trades, 
introduces  a  considerable  modification  to  the  rule,  which  is  of 
universal  application  when  labour  Is  almost  exclusively  employed 
in  production ;  namely,  that  commodities  never  vary  in  value, 
unless  a  greater  or  less  quantity  of  labour  be  bestowed  on  their 
production, lit  being  shown  in  this  section  that,  without  any  varia¬ 
tion  in  the/  quantity  of  labour,  the  rise  of  its  value  merely  will 
occasion  a  fall  in  the  exchangeable  value  of  those  goods  in  the 
production  of  which  fixed  capital  is  employed;  the  larger  the  amount 
of  fixed  capital,  the  greater  will  be  the  fall. 


SECTION  Y. 

The  principle  that  value  does  not  vary  with  the  rise  or  fall  of  wages,  modified  also 
t>y  the  unequal  dur;ibility_of  capital,  and  by  the  unequal  rapidity  with  which  it  is 
returned  to  its  (MptoyW.  ' 

In  the  last  section  we  have  supposed  that,  of  two  equal  capitals,  in 
two  different  occupations,  the  proportions  of  fixed  and  circulating 
capitals  were  unequal;  now  let  us  suppose  them  to  be  in  the  same 
proportion,  but  of  unequal  durability.  In  proportion  as  fixed  capi¬ 
tal  is  less  durable,  it  approaches  to  the  nature  oT circulating  capital. 
It  will  be  consumed  and  its  value  reproduced  in  a  shorter  time,  in 
order  to  preserve  the  capital  of  the  manufacturer.  We  have  just 
seen,  that  in  proportion  as  fixed  capital  preponderates  in  a  manu¬ 
facture,  when  wages  rise,  the  value  of  commodities  produced  in 
that  manufacture,  is  relatively  lower  than  that  of  commodities  pro¬ 
duced  in  manufactures  where  circulating  capital  preponderates.  In 
proportion  to  the  less  durability  of  fixed  capital,  and  its  approach 
to  the  nature  of  circulating  capital,  the  same  effect  will  be  produced 
by  the  same  cause. 

If  fixed  capital  be  not  of  a  durable  nature,  it  will  require  a  great 
quantity  of  labour  annually  to  keep  it  in  its  original  state  of  effi¬ 
ciency  ;  but  the  labour  so  bestowed  may  be  considered  as  really 
expended  on  the  commodity  manufactured,  which  must  bear  a  value 


26 


ON  VALUE. 


in  proportion  to  such  labour.  If  I  had  a  machine  worth  20,000/. 
which  with  very  little  labour  was  efficient  to  the  production  of 
commodities,  and  if  the  wear  and  tear  of  such  machine  were  of 
trifling  amount,  and  the  general  rate  of  profit  10  percent.,  I  should 
not  require  much  more  than  2000/.  to  be  added  to  the  price  of  the 
goods,  on  account  of  the  employment  of  my  machine ;  but  if  the 
wear  and  tear  of  the  machine  were  great,  if  the  quantity  of  labour 
requisite  to  keep  it  in  an  efficient  state  were  that  of  fifty  men 
annually,  I  should  require  an  additional  price  for  my  goods,  equal 
to  that  which  would  be  obtained  by  any  other  manufacturer  who 
employed  fifty  men  in  the  production  of  other  goods,  and  who  used 
no  machinery  at  all. 

But.  a  rise  in  the  wages  of  labour  would  not  equally  affect 
commodities  produced  with  machinery  quickly  consumed,  and 
commodities  produced  with  machinery  slowly  consumed.  In  the 
production  of  the  one,  a  great  deal  of  labour  would  be  continually 
transferred  to  the  commodity  produced — in  the  other  very  little 
would  be  so  transferred.  L^Every  rise  of  wages,  therefore,  or,  which 
is  the  same  thing,  every  fall  of  profits,  would  lower  the  relative 
value  of  those  commodities  which  were  produced  with  a  capital  of 
a  durable  nature,  and  would  proportionally  elevate  those  which 
were  produced  with  capital  more  perishable.  A  fall  of  wages  would 
have  precisely  the  contrary  effect. 

I  have  already  said  that  fixed  capital  is  of  various  degrees  of 
durability — suppose  now  a  machine  which  could  in  any  particular 
trade  be  employed  to  do  the  work  of  one  hundred  men  for  a  year, 
and  that  it  would  last  only  for  one  year.  Suppose,  too,  the  machine 
to  cost  5000/.,  and  the  wages  annually  paid  to  one  hundred  men  to 
be  5000/.,  it  is  evident  that  it  would  be  a  matter  of  indifference  to 
the  manufacturer  whether  he  bought  the  machine  or  employed  the 
men.  But  suppose  labour  to  rise,  and  consequently  the  wages  of 
one  hundred  men  for  a  year  to  amount  to  5,500/.,  it  is  obvious  that 
the  manufacturer  would  now  no  longer  hesitate,  it  would  be  for  his 
interest  to  buy  the  machine  and  get  his  work  done  for  5000/.  But 
will  not  the  machine  rise  in  price,  will  not  that  also  be  worth  5,500/. 
in  consequence  of  the  rise  of  labour  ?  It  would  rise  in  price  if  there 
were  no  stock  employed  on  its  construction,  and  no  profits  to  be 
paid  to  the  maker  of  it.  If,  for  example,  the  machine  were  the 
produce  of  the  labour  of  one  hundred  men,  working  one  year  upon 
it  with  wages  of  50/.  each,  and  its  price  were  consequently  5000/. ; 
should  those  wages  rise  to  55/.,  its  price  would  be  5,500/.,  but  this 
cannot  be  the  case ;  less  than  one  hundred  men  are  employed  or  it 
could  not  be  sold  for  5000/.,  for  out  of  the  5000/.  must  be  paid  the 
profits  of  stock  which  employed  the  men.  Suppose  then  that  only 
eighty-five  men  were  employed  at  an  expense  of  50/.  each,  or  4,250/. 
per  annum,  and  that  the  750/.  which  the  sale  of  the  machine  would 
produce  over  and  above  the  wages  advanced  to  the  men,  constituted 
the  profits  of  the  engineer’s  stock.  When  wages  rose  10  per  cent., 


ON  VALUE. 


27 


he  would  be  obliged  to  employ  an  additional  capital  of  425/.,  and 
would  therefore  employ  4, 675/.  instead  of  4,250/.,  on  which  capital 
he  would  only  get  a  profit  of  325/.  if  he  continued  to  sell  his  machine 
for  5000/. ;  but  this  is  precisely  the  case  of  all  manufacturers  and 
capitalists;  the  rise  of  wages  affects  them  all.  If  therefore  the 
maker  of  the  machine  should  raise  the  price  of  it  in  consequence  of 
a  rise  of  wages,  an  unusual  quantity  of  capital  would  be  employed 
in  the  construction  of  such  machines,  till  their  price  afforded  only 
the  common  rate  of  profits.^  We  see  then  that  machines  would 
not  rise  in  price,  in  consequence  of  a  rise  of  wages. 

The  manufacturer,  however,  who  in  a  general  rise  of  wages  can 
have  recourse  to  a  machine  which  shall  not  increase  the  charge  of 
production  on  his  commodity,  would  enjoy  peculiar  advantages  if  / 
lie  could  continue  to  charge  the  same  price  for  his  goods  ;  but  he ^ 
as  we  have  already  seen,  would  be  obliged  to  lower  the  price  of  his 
commodities,  or  capital  would  flow  to  his  trade  till  his  profits  had 
sunk  to  the  general  level.  Thus  then  is  the  public  benefited  by 
machinery  :  these  mute  agents  are  always  the  produce  of  much 
less  labour  than  that  which  they  displace,  even  when  they  are  of 
the  same  mtyiey  value.  Through  their  influence,  an  increase  in 
the  price  of  provisions  which  raises  wages  will  affect  fewer  persons  : 
it  will  reach,  as  in  the  above  instance,  eighty-five  men  instead  of 
a  hundred,  and  the  saving  which  is  the  consequence  shows  itself 
in  the  reduced  price  of  the  commodity  manufactured.  Neither 
machines,  nor  the  commodities  made  by  them,  rise  in  real  value, 
but  all  commodities  made  by  machines  fall,  and  fall  in  propor¬ 
tion  to  their  durability. 

It  will  be  seen  then,  that  in  the  early  stages  of  society,  before 
much  machinery  or  durable  capital  is  used,  the  commodities  pro¬ 
duced  by  equal  capitals  will  be  nearly  of  equal  value,  and  will  rise 
or  fall  only  relatively  to  each  other  on  account  of  more  or  less 
labour  being  required  for  their  production  ;  but  after  the  introduc¬ 
tion  of  these  expensive  and  durable  instruments,  the  commodities 
produced  by  the  employment  of  equal  capitals  will  be  of  very 
unequal  value,  and  although  they  will  still  be  liable  to  rise  or  fall 
relatively  to  each  other,  as  more  or  less  labour  becomes  necessary 
to  their  production,  they  will  be  subject  to  another,  though  a  minor 
variation,  also  from  the  rise  or  full  of  wages  and  profits.  Since 
goods  which  sell  for  5000/.  may  be  the  produce  of  a  capital  equal 
in  amount  to  that  from  which  are  produced  other  goods  which  sell 
for  10,000/.,  the  profits  on  their  manufacture  will  be  the  same  ; 

*  We  here  see  why  it  is  that  old  countries  are  constantly  impelled  to  employ 
machinery,  and  new  countries  to  employ  labour.  With  every  difficulty  of  providing 
for  the  maintenance  of  men,  labour  necessarily  rises,  and  with  every  rise  in  the  price 
of  labour,  new  temptations  are  offered  to  the  use  of  machinery.  This  difficulty  of 
providing  for  the  maintenance  of  men  is  in  constant  operation  in  old  countries,  in  new 
ones  a  very  great  increase  in  the  population  may  take  place  without  the  least  rise  in 
the  wages  of  labour.  It  may  be  as  easy  to  provide  for  the  7th,  8th,  and  9th  million 
of  men  as  for  the  2d,  3d.  and  4tli. 


28 


ON  VALUE. 


but  those  profits  would  be  unequal,  if  the  prices  of  the  goods  did 
not  vary  with  a  rise  or  fall  in  the  rate  of  profits. 

>  It  appears,  too,  that  in  proportion  to  the  durability  of  capital 
employed  in  any  kind  of  production,  the  relative  prices  of  those 
connnodites  on  which  such  durable  capital  is  employed,  will  vary 
inversely  as  wages ;  they  will  fall  as  wages  rise,  and  rise  as  wages 
fall ;  and,  on  the  contrary,  those  which  are  produced  chiefly  by 
labour  with  less  fixed  capital,  or  with  fixed  capital  of  a  less  dur¬ 
able  character  than  the  medium  in  which  price  is  estimated,  will 
rise  as  wages  rise,  and  fall  as  wages  fall. 


SECTION  YI. 


On  an  invariable  measure  of  value. 


When  commodities  varied  in  relative  value,  it  would  be  desir¬ 
able  to  have  the  means  of  ascertaining  which  of  them  fell  and 
which  rose  in  real  value,  and  this  could  be  effected  only  by  compai’- 
ing  them  one  after  another  with  some  invariable  standard  measure 
of  value,  which  should  itself  be  subject  to  none  of  the  fluctuations 
to  which  other  commodities  are  exposed.  ^Qtjuch  a  measure  it  is 
/  impossible  to  be  possessed,  because  there  is  no  commodity"  which 
is  not  itself  exposed  to  the  same  variations  as  the  things  the  value 
of  which  is  to  be  ascertained  ;  that  is,  there  is  none  which  is  not 
subject  to  require  more  or  less  labour  for  its  production.  But  if 
this  cause  of  variation  in  the  value  of  a  medium  could  be  removed 
j  — if  it  were  possible  that  in  the  production  of  our  money,  for 
instance,  the  same  quantity  of  labour  should  at  all  times  be  required, 
still  it  w7ould  not  be  a  perfect  standard  or  invariable  measure  of 
value,  because,  as  I  have  already  endeavoured  to  explain,  it  would 
>be  subject  to  relative  variations  from  a  rise  or  fall  of  wages,  on 
account  of  the  different  proportions  of  fixed  capital  which  might 
be  necessary  to  produce  it,  and  to  produce  those  other  commodities 
w'hose  alteration  of  value  we  wished  to  ascertain.  It  might  be 
subject  to  variations,  too,  from  the  same  cause,  on  account  of  the 
^different  degrees  of  durability  of  the  fixed  capital  employed  on  it, 
and  the  commodities  to  be  compared  with  it — or  the  time  neces¬ 
sary  to  bring  the  one  to  market,  might  be  longer  or  shorter  than 
the  time  necessary  to  bring  the  other  commodities  to  market,  the 
variations  of  which  wrere  to  be  determined  ;  all  which  circumstances 
disqualify  any  commodity  that  can  be  thought  of  from  being  a 
perfectly  accurate  measure  of  value. 

!  If,  for  example,  we  w’ere  to  fix  on  gold  as  a  standard,  it  is  evi¬ 
dent  that  it  is  but  a  commodity  obtained  under  the  same  contin¬ 
gencies  as  every  other  commodity,  and  requiring  labour  and  fixed 
capital  to  produce  it.  Like  every  other  commodity,  improvements 


ON  VALUE. 


29 


in  the  saving  of  labour  might  be  applied  to  its  production,  and 
consequently  it  might  fall  in  relative  value  to  other  things  merely 
on  account  of  the  greater  facility  of  producing  it. 

If  we  suppose  this  cause  of  variation  to  be  removed,  and  the 
same  quantity  of  labour  to  be  always  required  to  obtain  the  same 
quantity  of  gold,  still  gold  would  not  be  a  perfect  measure  of  value, 
by  which  we  could  accurately  ascertain  the  variations  in  all  other 
things,  because  it  would  not  be  produced  with  precisely  the  same 
combinations  of  fixed  and  circulating  capital  as  all  other  things  ; 
nor  with  fixed  capital  of  the  same  durability  ;  nor  would  it  require 
precisely  the  same  length  of  time,  before  it  could  be  brought  to 
market.  It  would  be  a  perfect  measure  of  value  for  all  things  pr<£^ 
duced  under  the  same  circumstances  precisely  as  itself,  but  for  no 
others.  If,  for  example,  it  were  produced  under  the  same  circum¬ 
stances  as  we  have  supposed  necessary  to  produce  cloth  and  cotton 
goods,  it  would  be  a  perfect  measure  of  value  for  those  things,  but 
not  so  for  corn,  for  coals,  and  other  commodities  produced  with  either 
a  less  or  a  greater  proportion  of  fixed  capital,  because,  as  we  have 
shown,  every  alteration  in  the  permanent  rate  of  profits  would  have 
some  effect  on  the  relative  value  of  all  these  goods,  independently  of 
any  alteration  in  the  quantity  of  labour  employed  on  their  production. 

If  gold  were  produced  under  the  same  circumstances  as  corn,  even 
if  they  never  changed,  it  would  not,  for  the  same  reasons,  be  at  all 
times  a  perfect  measure  of  the  value  of  cloth  and  cotton  goods. 
Neither  gold,  then,  nor  any  other  commodity,  can  ever  be  a  perfect 
measure  of  value  for  all  things  ;  but  I  have  already  remarked, 
that  the  effect  on  the  relative  prices  of  things,  from  a  variation 
in  profits,  is  comparatively  slight ;  that  by  far  the  most  im¬ 
portant  effects  are  produced  by  the  varying  quantities  of  labour 
required  for  production  ;  and  therefore,  if  we  suppose  this  important 
cause  of  variation  removed  from  the  production  of  gold,  we  shall 
probably  possess  as  near  an  approximation  to  a  standard  measure 
of  value  as  can  be  theoretically  conceived.  May  not  gold  be  con-i^ 
sidered  as  a  commodity  produced  with  such  proportions  of  the  two 
kinds  of  capital  as  approach  nearest  to  the  average  quantity 
employed  in  the  production  of  most  commodities  ?  May  not  these 
proportions  be  so  nearly  equally  distant  from  the  two  extremes,  the 
one  where  little  fixed  capital  is  used,  the  other  where  little  labour 
is  employed,  as  to  form  a  just  mean  between  them? 

If,  then,  I  may  suppose  myself  to  be  possessed  of  a  standard  so 
nearly  approaching  to  an  invariable  one,  the  advantage  is,  that  I 
shall  be  enabled  to  speak  of  the  variations  of  other  things,  without 
embarrassing  myself  on  every  occasion  with  the  consideration  of  the 
possible  alteration  in  the  value  of  the  medium  in  which  price  and 
value  are  estimated. 

To  facilitate,  then,  the  object  of  this  enquiry,  although  I  fully 
allow  that  money  made  of  gold  is  subject  to  most  of  the  variations 
of  other  things,  I  shall  suppose  it  to  be  invariable,  and  therefore  all 


30 


ON  VALUE. 


alterations  in  price  to  be  occasioned  by  some  alteration  in  the  value 
of  the  commodity  of  which  I  may  be  speaking. 

Before  I  quit  this  subject,  it  may  be  proper  to  observe,  that 
Adam  Smith,  and  all  the  writers  who  have  followed  him,  have, 
without  one  exception  that  I  know  of,  maintained  that  a  rise  in  the 
price  of  labour  would  be  uniformly  followed  by  a  rise  in  the  price 
of  all  commodities.  T  hope  I  have  succeeded  in  showing,  that  there 
.  ai'e  no  grounds  for  such  an  opinion,  and  that  only  those  commodi¬ 
ties  would  rise  which  had  less  fixed  capital  employed  upon  them 
than  the  medium  in  which  price  was  estimated,  and  that  all  those 
which  had  more,  would  positively  fall  in  price  when  wages  -rose. 
On  the  contrary,  if  wages  fell,  those  commodities  only  would  fall, 
which  had  a  less  proportion  of  fixed  capital  employed  on  them, 
than  the  medium  in  which  price  was  estimated ;  all  those  which 
had  more,  would  positively  rise  in  price. 

It  is  necessary  for  me  also  to  remark,  that  I  have  not  said,  be¬ 
cause  one  commodity  has  so  much  labour  bestowed  upon  it  as  will 
cost  1000/.,  and  another  so  much  as  will  cost  2000/.,  that  there¬ 
fore  one  would  be  of  the  value  of  1000/.,  and  the  other  of  the  value 
of  2000/. ;  but  I  have  said  that  their  value  will  be  to  each  other  as 
two  to  one,  and  that  in  those  proportions  they  will  be  exchanged. 
It  is  of  no  importance  to  the  truth  of  this  doctrine,  whether  one  of 
these  commodities  sells  for  1,100/.  and  the  other  for  2,200/.,  or  one 
for  1,500/.  and  the  other  for  3000/.  ;  into  that  question  I  do  not 
at  present  enquire  ;  I  affirm  only,  that  their  relative  values  will  be 
governed  by  the  relative  quantities  of  labour  bestowed  on  their 
production.* 


SECTION  YU. 

Different  effects  from  the  alteration  in  the  value  of  money,  the  medium  in  which  price 
is  always  expressed,  or  from  the  alteration  in  the  value  of  the  commodities  which 
money  purchases. 

Although  I  shall,  as  I  have  already  explained,  have  occasion  to 
consider  money  as  invariable  in  value,  for  the  purpose  of  more  dis¬ 
tinctly  pointing  out  the  causes  of  relative  variations  in  the  value  of 
other  things,  it  may  be  useful  to  notice  the  different  effects  which 
will  follow  from  the  prices  of  goods  being  altered  by  the  causes  to 
which  I  have  already  adverted,  namely,  the  different  quantities  of 

*  Mr  Malthus  remarks  on  this  doctrine,  “We  have  the.  power  indeed,  arbitrarily, 
to  call  the  labour  which  has  been  employed  upon  a  commodity  its  real  value,  but  in 
so  doing,  we  use  words  in  a  different  sense  from  that  in  which  they  are  customarily 
used ;  we  confound  at  once  the  very  important  distinction  between  east  and  value  ; 
and  render  it  almost  impossible  to  explain  with  clearness  the  main  stimulus  to  the 
production  of  wealth,  which  in  fact  depends  upon  this  distinction.” 

Mr  Malthus  appears  to  think  that  it  is  a  part  of  my  doctrine,  that  the  cost  and 
value  of  a  thing  should  be  the  same ;  it  is,  if  he  means  by  cost,  “  cost  of  production” 
including  profits.  In  the  above  passage,  this  is  what  lie  does  not  mean,  and  therefore 
he  has  not  clearly  understood  me. 


ON  VALUE. 


31 


labour  required  to  produce  them,  and  their  being  altered  by  a  varia¬ 
tion  in  the  value  of’  money  itself. 

Money  being  a  variable  commodity,  the  rise  of  money-wages  ^yill — 
be  frequently  occasioned  by  a  fall  in  the  value  of  money.  A  rise 
(TTwages  from  this  cause  will,  indeed,  be  invariably  accompanied 
by  a  rise  in  the  price  of  commodities  ;  but  in  such  cases,  it  will  be 
found  that  labour  and  all  commodities  have  not  varied  in  regard  to 
each  other,  and  that  the  variation  has  been  confined  to  money. 

Money,  from  its  being  a  commodity  obtained  from  a  foreign 
country,  from  its  being  the  general  medium  of  exchange  between 
all  civilized  countries,  and  from  its  being  also  distributed  among 
those  countries  in  proportions  which  are  ever  changing  with  every 
improvement  in  commerce  and  machinery,  and  with  every  increasing 
difficulty  of  obtaining  food  and  necessaries  for  an  increasing  popula¬ 
tion,  is  subject  to  incessant  variations.  In  stating  the  principles 
whiclfiTegulafe  exchangeable  value  and  price,  we  should  carefully 
distinguish  between  those  variations  which  belong  to  the  commodity 
itself,  and  those  which  are  occasioned  by  a  variation  in  the  medium 
in  which  value  is  estimated,  or  price  expressed. 

A  rise  in  wages,  from  an  alteration  in  the  value  of  money,  pro¬ 
duces  a  general  effect  on  price,  and  for  that  reason  it  produces  no 
real  effect  whatever  on  profits.  On  the  contrary,  a  rise  of  wages, 
from  the  circumstance  of  the  labourer  being  more  liberally  rewarded, 
or  from  a  difficulty  of  procuring  the  necessaries  on  which  wages  are 
expended,  does  not,  except  in  some  instances,  produce  the  effect  of 
raising  price,  but  has  a  great  effect  in  lowing  profits.  In  the  one 
case,  no  greater  proportion  of  the  annual  labour  of  the  country  is 
devoted  to  the  support  of  the  labourers  ;  in  the  other  case,  a  larger 
portion  is  so  devoted. 

\It  is  according  to  the  division  of  the  whole  produce  of  the  land 
of  any  particular  farm,  between  the  three  classes,  of  landlord,  capi¬ 
talist,  and  labourer,  that  we  are  to  judge  of  the  rise  or  fall  of  rent, 
profit,  and  wages,  and  not  according  to  the  value  at  which  that 
produce  may  be  estimated  in  a  medium  which  is  confessedly  variafjTei  j 

It  is  not  by  the  absolute  quantity  of  produce  obtained  by  either  ^ 
class,  that  we  can  correctly  judge  of  the  rate  of  profit,  rent,  and 
wages,  but  by  the  quantity  of  labour  required  to  obtain  that  pro¬ 
duce.  By  improvements  in  machinery  and  agriculture,  the  whole 
produce  may  be  doubled ;  but  if  wages,  rent,  and  profit  be  also 
doubled,  these  three  will  bear  the  same  proportions  to  one  another 
as  before,  and  neither  could  be  said  to  have  relatively  varied.  But 
if  wages  partook  not  of  the  whole  of  this  increase;  if  they,  instead 
of  being  doubled,  were  only  increased  one-half;  if  rent,  instead  of 
being  doubled,  were  only  increased  three-fourths,  and  the  remain¬ 
ing  increase  went  to  profit,  it  would,  I  apprehend,  be  correct  for 
me  to  say,  that  rent  and  wages  had  fallen  while  profits  had  risen  ; 
for  if  we  had  an  invariable  standard  by  which  to  measure  the  value 
of  this  produce,  we  should  find  that  a  less  value  had  fallen  to  the 


32 


ON  VALUE. 


class  of  labourers  and  landlords,  and  a  greater  to  the  class  of  capi¬ 
talists,  than  had  been  given  before.  We  might  find,  for  example, 
that  though  the  absolute  quantity  of  commodities  had  been  doubled, 
they  were  the  produce  of  precisely  the  former  quantity  of  labour. 
Of  every  hundred  hats,  coats,  and  quarters  of  corn  produced,  if 


The  labourers  had  before  .  .  25 

The  landlords . 25 

And  the  capitalists  ....  50 


100: 

And  if,  after  these  commodities  were  double  the  quantity,  of  every 
100 

The  labourers  had  only  ...  22 

The  landlords . 22 

And  the  capitalists  ....  56 


100: 

In  that  case  I  should  say,  that  wages  and  rent  had  fallen  and  pro¬ 
fits  risen  ;  though,  in  consequence  of  the  abundance  of  commodities, 
the  quantity  paid  to  the  labourer  and  landlord  would  have  increased 
in  the  proportion  of  25  to  44.  Wages  are  to  be  estimated  by  their 
real  value,  viz.  by  the  quantity  of  labour  and  capital  employed  in 
producing  them,  and  not  by  their  nominal  value  either  in  coatsf  fiats, 
money,  or  corn.  Under  the  circumstances  I  have  just  supposed, 
commodities  would  have  fallen  to  half  their  former  value,  and  if 
money  had  not  varied,  to  half  their  former  price  also.  If  then  in 
this  medium,  which  had  not  varied  in  value,  the  wages  of  the 
labourer  should  be  found  to  have  fallen,  it  will  not  the  less  be  a  real 
fall,  because  they  might  furnish  him  with  a  greater  quantity  of  cheap 
commodities  than  his  former  wages. 

The  variation  in  the  value  of  money,  however  great,  makes  no 
difference  in  the  rate  of  profits ;  for  suppose  the  goods  of  the  manu¬ 
facturer  to  l'ise  from  1000/.  to  2000/.,  or  100  per  cent.,  if  his 
capital,  on  which  the  variations  of  money  have  as  much  effect  as 
on  the  value  of  produce,  if  his  machinery,  buildings,  and  stock  in 
trade  rise  also  a  100  per  cent.,  his  rate  of  profits  will  be  the  same, 
and  he  will  have  the  same  quantity,  and  no  more,  of  the  produce 
of  the  labour  of  the  country  at  his  command. 

If,  with  a  capital  of  a  given  value,  he  can,  by  economy  in  labour, 
double  the  quantity  of  produce,  and  it  fall  to  half  its  former  price, 
it  will  bear  the  same  proportion  to  the  capital  that  produced  it  which 
it  did  before,  and  consequently  profits  will  still  be  at  the  same  rate. 

If,  at  the  same  time  that  he  doubles  the  quantity  of  produce  by 
the  employment  of  the  same  capital,  the  value  of  money  is  by  any 
accident  lowered  one  half,  the  produce  will  sell  for  twice  the  money 
value  that  it  did  before ;  but  the  capital  employed  to  produce  it 


ON  VALUE. 


will  also  be  of  twice  its  former  money  value ;  and  therefore  in  this 
case  too,  the  value  of  the  produce  will  bear  the  same  proportion  to 
the  value  of  the  capital  as  it  did  before ;  and  although  the  produce 
be  doubled,  rent,  wages,  and  profits  will  only  vary  as  the  propor¬ 
tions  vary,  in  which  this  double  produce  may  be  divided  among 
the  three  classes  that  share  it. 


c 


CHAPTER  XL 


ON  RENT. 

It  remains  however  to  be  considered,  whether  the  appropriation  of 
land,  and  the  consequent  creation  of  rent,  will  occasion  any  variation 
in  the  relative  value  of  commodities,  independently  of  ttnwquantity 
of  labour  n e c e s s ary  t o  p i'bduc t ion.  In  order  to  understand  this 
part  of  the  subject,  we  must  enquire  into  the  nature  of  rent,  and 
the  laws  by  which  its  rise  or  fall  is  regulated. 

/  Rent  is  that  portion  of  the  produce  of  the  earth  which  is  paid  to 
(the  landlord  for  the  use  of  the  original  and  indestructible  powers 
|  of  the  soil.  It  is  often,  however,  confounded  with  the  interest  and  ’>1 
"profit  of  "capitaTj  and,  in  jioprdaf'Tanguage,-4he  term,  is  applied  to 
whatever  is  annually  paid  by  a  farmer  to  his  landlord.  If,  of  two 
adjoining  farms  of  the  same  extent,  and  oFThe  same  natural  fertility, 
one  had  all  the  conveniences  of  farming  buildings,  and,  besides, 
were  properly  drained  and  manured,  and  advantageously  divided 
by  hedges,  fences  and  walls,  while  the  other  had  none  of  these 
advantages,  more  remuneration  would  naturally  be  paid  for  the  use 
of  one,  than  for  the  use  of  the  other ;  yet  in  both  cases  this  remu¬ 
neration  would  be  called  rent.  But  it  is  evident,  that  a  portion  only 
of  the  money  annually  to  be  paid  for  the  improved  farm,  would  be 
given  for  the  original  and  indestructible  powers  of  the  soil ;  the 
other  portion  would  be  paid  for  the  use  of  the  capital  which  had 
been  employed  in  ameliorating  the  quality  of  the  land,  and  in 
erecting  such  buildings  as  were  necessary  to  secure  and  preserve 
ithe  produce.  Adam  Smith  sometimes  speaks  of  rent,  in  the  strict 
sense  to  which  I  am  desirous  of  confining  it,  but  more  often  in  the 
‘popular  sense,  in  which  the  term  is  usually  employed.  He  tells  us, 
that  the  demand  for  timber,  and  its  consequent  high  price,  in  the 
more  southern  countries  of  Europe,  caused  a  rent  to  be  paid  for 
forests  in  Norway,  which  coidd  before  afford  no  rent.  Is  it  not, 
however,  evident,  that  the  person  who  paid  what  he  thus  calls  rent, 
paid  it  in  consideration  of  the  valuable  commodity  Ayhich  was  then 
standing  on  the  land,  and  that  he  actually  repaid  himself  with  a 
profit,  by  the  sale  of  the  timber  l  If,  indeed,  after  the  timber  was 
removed,  any  compensation  were  paid  to  the  landlord  for  the  use 
of  the  land,  for  the  purpose  of  growing  timber  or  any  other  produce, 
with  a  view  to  future  demand,  such  compensation  might  justly  be 


ON  RENT. 


35 


called  rent,  because  it  would  be  paid  for  the  productive  powers  of 
the  land ;  but  in  the  case  stated  by  Adam  Smith,  the  compensation 
was  paid  for  theJiherty  of  removing  and  selling  the  Umber,  and  not 
for  the  liberty  ofgrowing  it.  He  speaks  also  of  the  rent  of  coal 
mines,  and  of  stone  quarries,  to  which  the  same  observation  applies 
— that  the  compensation  given  for  the  mine  or  quarry,  is  paid  for 
the  value  of  thecoaT  or  stone  which  can  Be  removed  from  them, 
and  has  no  connexion  "with  the  '  original  and  indestructible  powers 
of  the  land.  This  is  a  distinction  -of  great  importance,  in  an 
enquiry  concerning  rent  and  profits  ;  for  it  is  found,  that  the  laws 
which  regulate  the  progress  of  rent,  are  widely  different,  from  those 
which  regulate  the  progress  of  profits,  and  seldom  operate  in  the 
same  direction.  In  all  improved  countries,  that  which  is  annually 
paid  to  the  landlord,  partaking  of  both  characters,  rent  and  profit, 
is  sometimes  kept  stationary  by  the  effects  of  opposing  causes ;  at 
other  times  advances  or  recedes,  as  one  or  the  other  of  these  causes 
preponderates.  In  the  future  pages  of  this  work,  then,  whenever  I 
speak  of  the  rent  of  land,  I  wish  to  be  understood  as  speaking  of 
that  compensation,  which  is  paid  to  the  owner  of  land  for  the  use 
of  its  original  and  indestructible  powers. 

On  the  first,  sp.t.tljnp;  nfji.  country,  in  which  there  is  an  abundance 
of  rich  and  fertile  land,  aTvery  small  proportion  of  which  is  required 
to  be  cultivated  for  the  support  of  the  actual  population,  or  indeed 
can  be  qultivated  with  the  capital  which  the  population  can  com¬ 
mand,  Were  will  be  nojent. ;  for  no  one  would  pay  for  the  use  of 
land,  wnen~fh"ereivas  an  abundant  quantity  not  yet  appropriated, 
and,  therefore,  at  the  disposal  of  whosoever  might  choose  to  culti¬ 
vate  it. 

On  the  common  principles  of  supply  and  demand,  no  rent  could 
be  paid  for  such  land,  for  the  reason  htirted  why  nothing  is  given 
for  the  use  of  air  and  water,  or  for  any  other  of  the  gifts  of  nature 
which  exist  in  boundless  quantity.  With  a  given  quantity  of 
materials,  and  with  the  assistance  of  the  pressure  of  the  atmosphere, 
and  the  elasticity  of  steam,  engines  may  perform  work,  and  abridge 
human  labour  to  a  very  great  extent ;  but  no  charge  is  made  for 
the  use  of  these  natural  aids,  because  they  are  inexhaustible,  and 
at  every  man’s  disposal.  In  the  same  manner,  the  brewer,  the 
distiller,  the  dyer,  make  incessant  use  of  the  air  and  water  for  the 
production  of  their  commodities ;  but  as  the  supply  is  boundless, 
they  bear  no  price.*  If  all  land  had  the  same  properties,  if  it  were 


*  “  The  earth,  as  we  have  already  seen,  is  not  the  only  agent  of  nature  which  has 
a  productive  power  ;  hut  it  is  the  only  one,  or  nearly  so,  that  one  set  of  men  take  to 
themselves,  to  the  exclusion  of  others  ;  and  of  which,  consequently,  they  can  appro¬ 
priate  the  benefits.  The  waters  of  rivers,  and  of  the  sea,  by  the  power  which  they 
have  of  giving  movement  to  our  machines,  carrying  our  boats,  nourishing  our  fish, 
have  also  a  productive  power;  the  wind  which  turns  our  mills,  and  even  the  heat  of 
the  sun,  work  for  us  ;  but  happily  no  one  has  yet  been  able  to  say,  the  ‘  wind  and 
the  sun  are  mine,  and  the  service  which  they  render  must  be  paid  for.’” — Economic 
Politique,  par  J.  B.  Say,  vol.  ii.  p.  124. 


ON  KENT. 


8<’ 

unlimited  in  quantity,  and  uniform  in  quality,  no  charge  could  be 
made  for  its  use,  unless  where  it  possessed  peculiar  advantages  of 
.situation.  It  is  only,  then,  because  land  is  not  unlimited  in 
?|quantity  and~uniforTir~in  quality,  ahd~~hccausc,  in  the  progress  of 
J  popidimoin—Lind  ofAnr~TTrfcrior^  ~l5r~iess~~  advantageously 
jfl  situated,  is  called  into  ciilti vatimirthatTren t  is  eyeFpaid  for  the  use 
yof  iti  When,  m  the  progress  of  societyTTahcTof  the  second  degTee 
of  fertility  is  taken  into  cultivation,  rent  immediately  commences 
.on  that  of  the  first  quality,  and  the  amount  of  that  rent  wiTTdepend 
/  on  the  difference  in  the  quality  of  these  two  portions  of  land. 

When  land  of  the  third  quality  is  taken  into  cultivation,  rent 
immediately  commences  on  the  second,  and  it  is  regulated  as  before, 
by  the  difference  in  their  productive  powers.  At  the  same  time, 
the  rent  of  the  first  quality  will  rise,  for  that  must  always  be  above 
the  rent  of  the  second,  by  the  difference  between  the  produce 
which  they  yield  with  a  given  quantity  of  capital  and  labour. 
With  every  step  in  the  progress  of  population,  which  shall  oblige  a 
country  to  have  recourse  to  land  of  a  worse  quality,  to  enable  it  to 
raise  its  supply  of  food,  rent,  on  all  the  more  fertile  land,  will  rise. 

Thus  suppose  land — No.  I,  2,  3, — to  yield,  with  an  equal 
employment  of  capital  and  labour,  a  net  produce  of  100,  90,  and  80 
quarters  of  corn.  In  a  new  country,  -where  there  is  an  abundance 
of  fertile  land  compared  with  the  population,  and  where  therefore 
it  is  only  necessary  to  cultivate  No.  1,  the  whole  net  produce  will 
belong  to  the  cultivator,  and  will  be  the  profits  of  the  stock  which 
he  advances.  As  soon  as  population  had  so  far  increased  as  to 
make  it  necessary  to  cultivate  No.  2,  from  which  ninety  quarters 
only  can  be  obtained  after  supporting  the  labourers,  rent  would 
commence  on  No.  1 ;  for  either  there  must  be  two  rates  of  profit 
on  agricultural  capital,  or  ten  quarters,  or  the  value  of  ten  quarters 
must  be  withdrawn  from  the  produce  of  No.  1,  for  some  other 
purpose.  Whether  the  proprietor  of  the  land,  or  any  other  person, 
cultivated  No.  ten  quarto's  would  equally 'constitute  rent; 

for  the  cultivator  of  No.  2  would  eJelTthe  same  result  with  his 
capital,  whether  he  cultivated  No.  1,  paying  ten  quarters  for  rent, 
or  continued  to  cultivate  No.  2,  paying  no  rent.  In  the  same 
manner  it  might  be  shown  that  when  No.  3  is  brought  into  culti¬ 
vation,  the  rent  of  No.  2  must  be  ten  quarters,  or  the  value  of  ten 
quarters,  whilst  the  rent  of  No.  1  would  rise  to  twenty  quarters; 
for  the  cultivator  of  No.  3  would  have  the  same  profits  whether  he 
paid  twenty  quarters  for  the  rent  of  No.  1,  ten  quarters  for  the 
rent  of  No.  2,  or  cultivated  No.  3  free  of  all  rent. 

It  often,  and,  indeed,  commonly  happens,  that  before  No.  2,  3, 
4,  .or  o,  or  the  inferior  lands  are  cultivated,  capital  can  be  employed 
more  productively  on  those  lands  which  are  already  in  cultivation. 
It  may  perhaps  be  found,  that  by  doubling  the  original  capital 
employed  on  No.  1,  though  the  produce  will  not  be  doubled,  will 
cot  be  increased  by  100  quarters,  it  may  be  increased  by  eighty-five 


ON  KENT. 


37 


r 


quarters,  and  that  this  quantity  exceeds  what  could  be  obtained  by 
employing  the  same  capital  on  land  No.  3. 

In  such  case,  capital  will  be  preferably  employed  on  the  old  land, 
and  will  equally  create  a  rent ;  for  rent  is  always  the  difference 
between  the  produce  obtained  TtjMhe  employment  of  two  equal 
qnantitioa~Q£IgH^Sdnnd  labour,  if,  with  a  capitaf~oFT000?. "  a  ] 
tenant  obtain  100  quarters  of  wheat  from  his  land,  and  by  the  em¬ 
ployment  of  a  second  capital  of  1000/.,  he  obtain  a  further  return  I 
of  eighty-five,  his  landlord  wTould  have  the  power,  at  the  expiration/ 
of  his  lease,  of  obliging  him  to  pay  fifteen  quarters,  or  an  equiva-j 
lent  value  for  additional  rent ;  for  there  cannot  be  two  rates  of 
profit.  If  lie  is  satisfied-  with  a  diminution  of  fifteen  qu alters  in  the 
return  for  his  second  1000/.,  it  is  because  no  employment  more 
profitable  can  be  found  for  it.  The  common  rate  of  profit  would 
be  in  that  proportion,  and  if  the  original  tenant  refused,  some  other 
person  would  be  found  willing  to  give  all  which  exceeded  that  rate 
of  profit  to  the  owner  of  the  land  from  which  he  derived  it. 

In  this  case,  as  well  as  in  the  other,  the  capital  last  employed  pays 
no  rent.  For  the  greater  productive  powers  of  the  first  1000/., 
fifteen  quarters  is  paid  for  rent,  for  the  employment  of  the  second 
1000/.,  no  rent  whatever  is  paid.  If  a  third  1000/.  be  employed  on 
the  same  land,  with  a  return  of  seventy-five  quarters,  rent  will  then 
be  paid  for  the  second  1000/.,  and  will  be  equal  to  the  difference 
between  the  produce  of  these  two,  or  ten  quarters ;  and  at  the  same 
time  the  rent  of  the  first  1000/.  will  rise  from  fifteen  to  twenty- 
five  quarters  ;  while  the  last  1000/.  will  pay  no  rent  whatever. 

If,  then,  good  land  existed  in  a  quantity  much  more  abundant  ^ 
than  the  production  of  food  for  an  increasing  population  required,' 
or  if  capital  could  be  indefinitely  employed  without  a  diminished.'  v/ 
return  on  the  old  land,  there  could  be  no  rise  of  rent ;  for  rent  in-j  ' 
variably  proceeds  from  the  employment  of  an  additional  quantity  of  , 
labour  with  a  proportionally  less  return. 

The  most  fertile  and  most  favourably  situated  land  will  be  first  cul¬ 
tivated,  and  the  exchangeable  value  of  its  produce  Avill  be  adjusted 
iiT  the  same  manner  as  the  exchangeable  value  of  all  other  commo¬ 
dities-,  by  the  total  quantity  ( )  f  la  bo  luuiecessttryiu  "tarriaii  s  forms,  from 
fifsrTolifs'fffo^producc  if  aTTd~I)nng--itJ.OTnarket.  hen  lancfof  an 
inferior  quality  is  taken  into  cultivation,  the  exchangeable  value  of 
raw  produce  will  rise,  because  more  labour  is  required  to  produce  it. 

The  exchangeable  value  of  all  commodities,  whether  they  be 
manufactured,  or  the  produce  of  the  mines,  or  the  produce  of  land,  ^ 
is  always  regulated,  not  by  the  less  quantity  of  labour  that  will 
suffice  for  their  production  under  circumstances  highly  favourable, 
and  exclusively  enjoyed  byTtuise  who  have  peculiar  facilities  of 
production  ;  but  by  the- grealxI-^tprantaty-eOabotir  itCccssririt}'  be- 
stowStl  on  their  production  by  those  who  have  no  such  facilities  ; 
by  those  who  continue  to  produce  them  under  the  most  unfavourable 
circumstances  ;  meaning — by  the  most  unfavourable  circumstances, 


ON  KENT. 


88 

the  most  unfavourable  under  which  the  quantity  of  produce  required, 
renders  it  necessary  to  carry  on  the  production. 

Thus,  in  a  charitable  institution,  where  the  poor  are  set  to  work 
with  the  funds  of  benefactors,  the  general  prices  of  the  commodi¬ 
ties,  which  are  the  produce  of  such  work,  will  not  be  governed  by 
the  peculiar  facilities  afforded  to  these  workmen,  but  by  the  common, 
usual,  and  natural  difficulties,  which  every  other  manufacturer  will 
have  to  encounter.  The  manufacturer  enjoying  none  of  these  faci¬ 
lities  might  indeed  be  driven  altogether  from  the  market,  if  the 
supply  afforded  by  these  favoured  workmen  were  equal  to  all  the 
wants  of  the  community  ;  but  if  he  continued  the  trade,  it  would 
be  only  on  condition  that  lie  should  derive  from  it  the  usual  and. 
general  rate  of  profits  on  stock  ;  and  that  could  only  happen  when 
Ins  commodity  sold  for  a  price  proportioned  to  the  quantity  of 
labour  bestowed  on  its  production.* 

It  is  true,  that  on  the  best  land,  the  same  produce  would  still  be 
obtained  with  the  same  labour  as  before,  but  its  value  would  be  en¬ 
hanced  in  consequence  of  the  diminished  returns  obtained  by  those 
who  employed  fresh  labour  and  stock  on  the  less  fertile  land.  Not¬ 
withstanding,  then,  that  the  advantages  of  fertile  over  inferior  lands 
are  in  no  case  lost,,  but  pnly  transferred  from  the  cultivator,  or  con¬ 
sumer,  to  the  landlord,  yet,  since  more 'labour  is  required  on  the 
inferior  lands,  and  since  it  is  from  such  land  only  that  we  are 
enabled  to  furnish  ourselves  with  the  additional  supply  of  raw 
produce,  the  comparative  value  of  that  produce  will  continue  per¬ 
manently  above  its  former  level,  and  make  it  exchange  for  more  hats< 

/  cloth,  shoes,  &c.,  &c.,  in  the  production  of  which  no  such  additional 
quantity  of  labour  is  required. 

I  Thmreason  then,  why  raw  produce  rises  in  comparative  value,  is 
•/because  more  labour  is  employed  in  the  production  of  the  last 
portion  obtained,  and  not  because  a  rent  Is  paid  to  the  landlord. 
The  value  of  corn  is  regulated  by  the  quantity  of  labour  bestowed 
on  its  production  on  that  quality  of  land,  or  with  that  portion  of 


*  Has  not  M.  Say  forgotten,  in  the  following  passage,  that  it  is  the  cost  of  produc¬ 
tion  which  ultimately  regulates  price  ?  “  The  produce  of  labour  employed  on  the  land 
has  this  peculiar  property,  that  it  does  not  become  more  dear  by  becoming  more  scarce, 
because  population  always  diminishes  at  the  same  time  that  food  diminishes,  and 
consequently  the  quantity  of  these  products  demanded,  diminishes  at  the  same  time 
as  the  quantity  supplied.  Besides,  it  is  not  observed  that  corn  is  more  dear  in  those 
places  where  there  is  plenty  of  uncultivated  land,  than  in  completely  cultivated  coun¬ 
tries.  England  and  Trance  were  much  more  imperfectly  cultivated  in  the  middle 
ages  than  they  are  now  ;  they  produced  much  less  raw  produce  :  nevertheless,  from 
all  that  we  can  judge  by  a  comparison  with  the  value  of  other  things,  com  was  not 
sold  at  a  dearer  price.  If  the  produce  was  less,  so  was  the  population ;  the  weakness  of 
the  demand  compensated  the  feebleness  of  the  supply.”  Vol.  ii.  33S.  M.  Say  being 
impressed  with  the  opinion  that  the  price  of  commodities  is  regulated  by  the  price  of 
labour,  and  justly  supposing  that  charitable  institutions  of  all  sorts  tend  to  increase  the 
population  beyond  what  it  otherwise  would  he,  and  therefore  to  lower  wages,  says, 
“  1  suspect  that  the  cheapness  of  the  goods  which  come  from  England  is  partly 
caused  by  the  numerous  charitable  institutions  which  exist  in  that  country.”  Vol. 
ii.  ->7~.  This  is  a  consistent  opinion  in  one  who  maintains  that  wages  regulate  price. 


OX  RENT. 


39 


canital.  which  Days  no  rent.  Com  is  not  hidb_beeause-a-^ent  is  *< 


although  landlords  should  forego  the  whole  of  theuuent.  Such  a 
lncasurc  would  only  enable  some  farmers  to  live  like  gentlemen, 
but  would  not  diminish  the  quantity  of  labour  necessary  to  raise 
raw  produce  on  the  least  productive  land  in  cultivation. 

Nothing  is  more  common  than  to  hear  of  the  advantages  which 
the  land  possesses' over  every  other  sbui'ce "of  useful  produce,  on 
account  of  the  surplus  which  it  yields  in  the  form  of  rent.  Net 
when~tnnd  Is  mosr"ntnTnrtrTnr,~  TdreTr-mnst-produeti ve,  and  most 
fertile,  it  yields  no  rent;  and  it  is  only  when  its  powers  decay,  and* 
less_i§_  yielded  in  return  for  labour,  that  a  share  of  the  original 
produce  of  the  more  fertile  portions  is  .set  apart  for  rent.  It  is 
singular  that  this  quality  in  the  land,  which  should  have  been 
noticed  as  an  imperfection,  compared  with  the  natural  agents  by 
which  manufacturers  are  assisted,  should  have  been  pointed  out  as 
constituting  its  peculiar  pre-eminence.  If  air,  water,  the  elasticity 
of  steam,  and  the  pressure  of  the  atmosphere,  were  of  various  quali¬ 
ties  ;  if  they  could  be  appropriated,.  ancLeach  quality  existed  only 
in  moderate  abundance,  they,  as  wm  as  |he  land,  would  afford  a 
rent,  as  the  successive  qualities  were  wrought  into  nse.  With  every 
worse  quality  employed,  the  value  of  the  commodities  in  the  manu¬ 
facture  of  which  they  were  used,  would  rise,  because  eqnaL-quanti-^ 
ties  of  labour  woukL-be  kss  productive.  Man  would  do  more  by 
tluT sweat  tff4ris15row,  and  nature  perform  less  ;  and  the  land  would 
be  no  longer  pre-eminent  for  its  limited  powers. 

If  the  surplus  produe'e  which  land  affords  in  the  form  of  rent  be 
an  advantage,  it  is  desirable  that,  every  year,  the  machinery  newly 
constructed  should  be  less  efficient  than  the  old,  as  that  would 
undoubtedly  give  a  greater  exchangeable  value  to  the  goods  manu¬ 
factured,  not  only  by  that  machinery  but  by  all  the  other  machinery 
in  the  kingdom  ;  and  a  rent  would  be  paid  to  all  those  who  possessed 
the  most  productive  machinery.* 

*  “  In  agriculture,  too,”  says  Adam  Smith,  “  nature  labours  along  with  man  ;  and 
though  her  labour  costs  no  expense,  its  produce  has  its  value,  as  well  as  that  of  the 
most  expensive  workman.”  The  labour  of  nature  is  paid,  not  because  she  does  much,  I 
but  because  she  does  little.  In  proportion  as  she  becomes  niggardly  in  her  gifts,  she  1 
exacts  a  greater  price  for  her  work.  Where  she  is  munificently  beneficent,  she  always  | 
works  gratis.  “  The  labouring  cattle  employed  in  agriculture,  not  only  occasion,  like 
the  workmen  in  manufactures,  the  reproduction  of  a  value  equal  to  their  own  con¬ 
sumption,  or  to  the  capital  which  employs  them,  together  with  its  owner’s  profits,  but 
of  a  much  greater  value.  Over  and  above  the  capital  of  the  farmer  and  all  its  profits, 
they  regularly  occasion  the  reproduction  of  the  rent  of  the  landlord.  This  rent  may 
be  considered  as  the  produce  of  those  powers  of  nature,  the  use  of  which  the  landlord 
lends  to  the  farmer.  It  is  greater  or  smaller  according  to  the  supposed  extent  of  those 
powers,  or,  in  other  words,  according  to  the  supposed  natural  or  improved  fertility  of 
the  land.  It  is  the  work  of  nature  which  remains,  after  deducting  or  compensating 
every  thing  which  can  be  regarded  as  the  work  of  man.  It  is  seldom  less  than  a 
fourth,  and  frequently  more  than  a  third  ofthe  whole  produce.  No  equal  quantity  of 
productive  labour  employed  in  manufactures,  can  ever  occasion  so  great  a  rcproduc- 


40 


OX  KENT. 


7  Hie  rise  of  rent  is  always  the  effect  of  the  increasing  •wealth  of 
the  country,  and  of  the  diffienir.y  of  providing  foodibr  itsjuigmented 
'  ixipulationT4EIk-a-g.vmptoni.lmt  it  is  never  a  cause  of  wealth  ;  for 
weirttiT  often  increases  most  rapidly  while  rent  is  either  stationary, 
or  even  falling.  Rent  increases  most.  rapidly^  as  the  disposable 
land  decreases  in  its  procTne'tvve  powers,  Wealth  increases  most 


ra 


•apidlv  in  those  countries  where  the  disposable  land  is  most  fertile, 
where  importation  is  least  restricted,  and  where,  througlTagficiiI- 
tural  improvements,  productions  can  be  multiplied  without  any 
increase  in  the  proportional  quantity  of  labour,  and  where  conse¬ 
quently  the  progress  of  rent  is 'slow. 

If  the  high  prieemf  corn -Aver&__t lie  effect,  and  not  the  cause  of 
rent,  price  would  be  proportionally  Influenced  as  Tents  were  high  or 
low,  and  rent  would  bedrboTYrptrnent-^a-rt-ef— priee. — But  that  corn 
which  is"  produced  by  the  greatest  quantity  of  labour  is  the  regu¬ 
lator  of  the  price  of  corn  :  and  rent  does  not  and  cannot  enter  in 
the  least  degree  as  a  component  part  of  its  price.*  Adam  Smith, 
therefore,  cannot  be  correct  in  supposing  that  the  original  rule 
which  regulated  the  exchangeable  value  of  commodities,  namely, 
the  comparative  quantity  of  labour  by  which  they  were  produced, 
can  be  at  all  altered  by  the  appropriation  of  land  and  the  payment 
of  rent.  Raw  material  enters  into  the^ composition  of  most  com¬ 


modities,  but  the  value  of  that  raw 
regulated  by  the  productiveness ~~of  the 


material,  as  well  as” corn,  is 


jfcapiial 


last 


vion.  In  them  nature  does  nothing ,  man  does  all ;  and  the  reproduction  must  always  be 
iu  proportion  to  the  strength  of  the  agents  that  occasion  it.  The  capital  employed  in 
agriculture,  therefore,  not  only  puts  into  motion  a  greater  quantity  of  productive 
labour  than  any  equal  capital  employed  in  manufactures,  but  in  proportion  too,  to  the 
quantity  of  the  productive  labour  which  it  employs,  it  adds  a  much  greater  value  to 
the  annual  produce -of  the  land  and  labour  of  the  country,  to  the  real  wealth  and 
revenue  of  its  inhabitants.  Of  all  the  ways  in  which  a  capital  can  be  employed,  it  is 
by  far  the  most  advantageous  to  the  society.” — Book  II.  chap.  v.  p.  1 5. 

Does  nature  nothing  for  man  in  manufactures  ?  Are  the  powers  of  wind  and  water, 
which  move  our  machinery,  and  assist  navigation,  nothing  ?  The  pressure  of  the 
atmosphere  and  the  elasticity  of  steam,  which  enable  us  to  work  the  most  stupendous 
engines — are  they  not  the  gifts  of  nature  ?  To  say  nothing  of  the  effects  of  the  matter 
of  heat  in  softening  and  melting  metals,  of  the  decomposition  of  the  atmosphere  in  the 
process  of  dyeing  and  fermentation.  There  is  not  a  manufacture  which  can  be  men¬ 
tioned,  iu  which  nature  does  not  give  her  assistance  to  man,  and  give  it  too,  generously 
and  gratuitously. 

In  remarking  on  the  passage  which  I  have  copied  from  Adam  Smith,  Mr  Buchanan 
observes,  “  I  have  endeavoured  to  show,  in  the  observations  on  productive  and 
unproductive  labour,  contained  in  the  fourth  volume,  that  agriculture  adds  no  more 
to  the  national  stock  than  any  other  sort  of  industry.  In  dwelling  on  the  reproduction 
of  rent  as  so  great  an  advantage  to  society,  Dr  Smith  does  not  reflect  that  rent  is  the 
effect  of  high  price,  and  that  what  the  landlord  gains  in  this  way,  he  gains  at  the 
expense  of  the  community  at  large.  There  is  no  absolute  gain  to  the  society  by  the 
reproduction  of  rent :  it  is  only  one  class  profiting  at  the  expense  of  another  class. 
The  notion  of  agriculture  yielding  a  produce,  and  a  rent  in  consequence,  because 
nature  concurs  with  human  industry  in  the  process  of  cultivation,  is  a  mere  fancy. 
It  is  not  from  the  produce,  but  from  the  price  at  which  the  produce  is  sold,  that  the 
rent  is  derived;  and  this  price  is  got  not  because  nature  assists  in  the  production,  hut 
because  it  is  the  price  which  suits  the  consumption  to  the  supply. 

*  The  clearly  understanding:  this  principle  is,  I  am  persuaded,  of  the  utmost  import¬ 
ance  to  the  science  of  political  economy. 


OS  RENT. 


-rent 


employed  on  the  land,  and  paying  no  jrnl 
not  a  component  part  of  the  price  oFcommodities. 

We  have  been  hitherto  considering  theeffects  of  the  natural  pro¬ 
gress  of  wealth  and  population  on  rent,  in  a  country  in  which  the  \ 
land  is  of  variously  productive  powers ;  and  we  have  seen,  that 
with  every  portion  of  additional  capital  which  it  becomes  necessary 
to  employ  on  “tire  la  rid  With  a  dess  productive  return,  rent  would 
rise.  It  joHows  from  the  same  principles,  that  any  circumstances 
in  .the  society  which  should  make  it;  I 

same-amount  of  capital-  on  the  land,- 


make  the  portion  last  employed  more  productive,  would  lowet  rent.  .' 
"Any  gl'MT  VCiTueTTon  fflriic  capitaffoff a  country,  which  should 
materially  diminish  the  funds  destined  for  the  maintenance  of  labour, 
would  naturally  have  this  effect.  Population  regulates  itself  by  the 
funds  which  are  to  employ  it,  and  therefore  always  increases  or 
diminishes  with  the  increase  or  diminution  of  capital.  Every  re¬ 
duction  off  capital  is  therefore  necessarily  followed  by  a  less 
effective  demand  for  conn  byaffdPoffpriceTand  by  diminished  cul¬ 
tivation.  In  the  reverseorder  to  that  in  which  the  accumulation 
of  capital  raises  rent,  will  the  diminution  of  it  lower  rent.  Land 
of  a  less  unproductive  quality  will  be  in  succession  relinquished, 
the  exchangeable  value  of  produce  will  fall,  and  land  of  a  superior 
quality  will  be  the  land  last  cultivated,  and  that  which  will  then 
pay  no  rent. 

The  same  effects  may,  however,  be  pi’oduced,  when  the  wealth 
and  population  of  a  country  are  increased Wfftliat  increase  is  accbm- 
panied  by  such  marked  improvements.!11  agriculture,  as  shall  have 
the  sornp  pffpcTuF  diniinkhimr  v  offeplrivating  the  poorer  ' 

lands,  or  of  expending  the  same  ajnount  of  capital  on  the  cultivation 
of  tlie~rnore  TertihTportions. 

If  a  million  of  quarters  of  com  be  necessary  for  the  support  of  a 
given  population,  and  it  be  raised  on  land  of  the  qualities  of 
No.  1,  2,  3  ;  and  if  an  improvement  be  afterwards  discovered  by 
which  it  can  be  raised  on  Xo.  1  and  2,  without  employing  Xo.  3, 
it  is  evident  that  the  immediate  effect  must  be  a  fall  of  rent :  for 
Xo.  2,  instead  of  Xo.  3,  will  then  be  cultivated  without  paying  any 
rent ;  and  the  rent  of  Xo.  1,  instead  of  being  the  difference  between 
the  produce  of  Xo.  3  and  Xo.  1,  will  be  the  difference  only  between 
Xo.  2  and  1.  With  the  same  population,  and  no  more,  there  can 
be  no  demand  for  any  additional  quantity  of  corn  ;  the  capital  and 
labour  employed  on  Xo.  3  will  be  devoted  to  the  production  of 
other  commodities  desirable  to  the  community,  and  can  have  no 
effect  in  raising  rent,  unless  the  raw  material  from  which  they  are 
made  cannot  be  obtained  without  employing  capital  less  advanta¬ 
geously  on  the  land,  in  which  case  Xo.  3  must  again  be  cultivated. 

It  is  undoubtedly  true,  that  the  fall  in  the  relative  price  of  raw*' 
produce,  in  consequence  of  the  improvement  in  agriculture,  or  rather 
in  consequence  of  less  labour  being  bestowed  on  its  production, 


OX  REXT 


mid  naturally  lead  to  Increased  accumulation ;  for  the  profits  of 

Nck  would  be  greatly  augmented.  This  accumulation  Would  lead 
cO  an  increased  demand  for  labour,  to  higher  wages,  to  an  increased 
population,  to  a  further  demand  for  raw  produce,  and  to  an 
increased  cultivation.  It  is  only,  however,  after  the  increase  in  the 
population,  that  rent  would  be  as  high  as  before  ;  that  is  to  say, 
after  No.  8  was  taken  into  cultivation.  A  considerable  period 
would  have  elapsed,  attended  with  a  positive  diminution  of  rent. 
y  But  improvements  in  agriculture  are  of  two  kinds  :  those  which 
I  increase  the  productive  powers  of  the  land,  and  those  which  enable 
I  us,  by  improving  our  machinery,  to  obtain  its  produce  with  less 
labour.  They  both  lead ktq  a  fall  in  the  price  of  raw  produce';  they 
both  affect  rent,  but  they  do  not  affect  it  equally.  If  they  did  not 
occasion  a  fall  in  the  price  of  raw  produce,  they  would  not  be 
improvements ;  for  it  is  the  essential  quality  of  an  improvement  to 
diminish  the  quantity  of  labour  before  required  to  produce  a  com¬ 
modity  ;  and  this  diminution  cannot  take  place  without  a  fall  of 
its  price  or  relative  value. 

The  improvements  which  increased  the  productive  powers  of  the 
land,  are  such  as  the  more  skilful  rotation  of  crops,  or  the  better 
choice  of  manure.  \  These  improvements  absolutely  enable  us  to 
obtain  the  same  produce  from  a  smaller  quantity  of  land.  If,  by  the 
introduction  of  a  course  of  turnips,  I  can  feed  my  sheep  besides 
raising  my  corn,  the\  land  on  which  the  sheep  were  before  fed 
becomes  unnecessary, \  and  the  same  quantity  of  raw  produce  is 
raised  by  the  employment  of  a  less  quantity  of  land.  If  I  discover 
a  manure  which  will  enable  me  to  make  a  piece  of  land  produce  20 
per  cent,  more  corn,  I  may  withdraw  at  least  a  portion  of  my 
capital  from  the  most  ^unproductive  part  of  my  farm.  But,  as  I 
before  observed,  it  is  not  necessary  that  land  should  be  thrown  out 
of  cultivation  in  order  to  reduce  rent :  to  produce  this  effect,  it  is 
sufficient  that  successive  portions  of  capital  are  employed  on  the 
same  land  with  different  results,  and  that  the  portion  which  gives 
the  least  result  should  be  withdrawn.  If,  by  the  introduction  of 
the  turnip  husbandry,  or  by  the  use  of  a  more  invigorating  manure, 
I  can  obtain  the  same  produc\\yith  less  capital,  and  without  dis¬ 
turbing  the  difference  between\  the  productive  powers'  of  the 
successive  portions  of  capital,  T&hafl  lower  rent ;  for  a  different  and 
more  productive  portion  will  be  that  which  will  form  the  standard 
from  which  every  other  will  be  reckoned.  If,  for  example,  the  suc¬ 
cessive  portions  of  capital  yielded  100,  90,  80,  70;  whilst  1 
employed  these  four  portions,  my  rent  would  be  60,  or  the  differ 
ence  between 


70  and  100  =  30  ' 
70  and  90  =  20 
70  and  80  =  10  - 


whilst  the  produce  would  be  3i0 


'  100 
90 
80 
7C 


f.O  J 


no 


ON  KENT. 


43 


and  wlule  I  employed  these  portions,  the  rent  would  remain  the 
same,  although  the  produce  of  each  should  have  an  equal  augmen¬ 
tation.  If,  instead  of  100,  90,  80,  70,  the  produce  should  be 
increased  to  125,  115,  105,  95,  the  Tent  would  still  be  60,  or  the 
difference  between 


95  and  125  =  30' 
95  and  115  =  20 
95  and  105  =  10  ■ 

60, 


whilst  the  produce  would  he 
increased  to  440 


125 


1 


115 

105 

95 


440 


But  with  such  an  increase  of  produce,  without  an  increase  of 
demand,*  there  could  be  no  motive  for  employing  so  much  capital 
on  the  land ;  one  portion  would  be  withdrawn,  and  consequently 
the  last  portion  of  capital  would  yield  105  instead  of  95,  and  rent 
would  fall  to  30,  or  the  difference  between 


105  and  125  s=  20 
105  and  115  =  10 

30 


whilst  the  produce  will  he  still 
adequate  to  the  wants  of  the 
population,  for  it  would  be  345 
quarters,  or 


r  125 

115 
■  105 

345 


the  demand  being  only  for  340  quarters. — But  there  are  improve¬ 
ments  which  may  lower  the  relative  value  of  produce  without 
lowering  fliecorn  rent,  though  they  will  lower  the  money  rent  of  land. 
Such  improvements  do  not  increase  the  productive  powers  of  the 
land ;  but  they  enable  us  to  obtain  its  produce  with  less  labour.  They  y 
are  raEtT^fttirScfed  to  the  formation  of  the  capital  applied  to  the  land, 
than  to  the  cidtivation  of  the  land  itself.  Improvements  in  agricul¬ 
tural  implements,  such  as  the  plough  and  the  thrashing  machine, 
economy  in  the  use  of  horses  employed  in  husbandry,  and  a  better 
knowledge  of  the  veterinary  art,  are  of  this  nature.  Less  capital,  V 
which  is  the  same  thing  as  less  labour,  will  be  employed  on  the  land  : )] 
but  to  obtain  the  same  produce,  less  land  cannot  be  cultivated.  / 
Whether  improvements  of  this  kind,  however,  affect  corn  rent,  must 
depend  on  the  question,  whether  the  difference  between  the  produce 
obtained  by  the  employment  of  different  portions  of  capital  •  be 
increased,  stationary,  or  diminished.  If  four  portions  of  capital, 

50,  60,  70,  80,  be  employed  on  the  land,  giving  each  the  same 
results,  and  any  improvement  in  the  formation  of  such  capital 
should  enable  me  to  withdraw  5  from  each,  so  that  they  should  be 
45,  55,  65,  and  75,  no  alteration  would  take  place  in  the  corn  rent; 
but  if  the  improvements  wrere  such  as  to  enable  me  to  make  the 
w  hole  saving  on  that  portion  of  capital,  which  is  least  productively 
employed,  corn  rent  would  immediately  fall,  because  the  difference 
between  the  capital  most  productive,  and  the  capital  least  produc- 

*  I  hope  I  am  not  understood  as  undervaluing  the  importance  of  all  sorts  of  im¬ 
provements  in  agriculture  to  landlords — their  immediate  effect  is  to  lower  rent;  but  as 
they  give  a  great  stimulus  to  population,  and  at  the  same  time  enable  u^to  cultivate 
poorer  lands  with  less  labour,  they  are  ultimately  of  immense  advantage  to  landlords. 

A  period,  however,  must  elapse,  during  which  they  arc  positively  injurious  to  him. 


44 


OK  RENT. 


five,  would  be  diminished ;  and  it  is  this  difference  which  constitutes 
retftr- 

/Without  multiplying  instances,  I  hope  enough  has  been  said  to 
snow,  that  whatever  diminishes  the  inequality  in  the  produce 
obtained  from  successive  portions  of  capital  employed  on  the  same 
or  on  new  land,  tends  to  lower  rent ;  and  that  whatever  increases 
that  inequality,  necessarily  produces  an  opposite  effect,  and  tends 

to  raise  it.  ^ _ 

In  speaking  of  the  rent  of  the  landlord,  we  have  rather  considered 
it  as  the  proportion  of  the  produce,  obtained  with  a  given  capital 
on  any  given  farm,  without  any  reference  to  its  exchangeable  value  ; 
but  since  the  same  cause,  the  difficulty  of  production,  raises  the 
exchangeable  value  of  raw  produce,  and  raises  also  the  proportion 
of  raw  produce  paid  to  the  landlord  for  rent,  it  is  obvious  that  the 
landlord  is  doubly  benefited  by  difficulty  of  production.  First,  he 
obtains  a  greater  share,  and,  secondly,  the  commodity  in  which  he 
is  paid  is  of  greater  value.* 


*  To  make  tliis  obvious,  and  to  show  the  degrees  in  which  corn  and  money  rent  will 
vary,  let  us  suppose  that  the  labour  of  ten  men  will,  on  land  of  a  certain  quality,  obtain 
180  quarters  of  wheat,  and  its  value  to  be  4/.  per  quarter,  or  720/. ;  and  that  the  labour 
often  additional  men  will,  on  the  same  or  any  other  land,  produce  only  170  quarters 
in  addition ;  wheat  would  rise  from  4/.  to  4/.  4s.  8d.  for  170  :  180  :  :  4/.  :  4/.  4s.  8d. ;  or, 
as  in  the  production  of  170  quarters,  the  labour  of  10  men  is  necessary  in  one  case,  and 
only  of  9'44  in  the  other,  the  rise  would  be  as  9'44  to  10,  or  us  4/.  to  4/.  4s.  8d.  If  10 
men  be  further  employed,  and  the  return  be 

160  the  price  will  rise  to  £4  10  0 

150  .  .  .  4  16  0 

140  .  .  5  2  10 


Now,  if  no  rent  was  paid  for  the  land  which  yielded  180  quarters,  when  corn  was  at 
4/.  per  quarter,  the  value  of  10  quarters  would  be  paid  as  rent  when  only  170  could  be 
procured,  which,  at  4/.  4s.  8d.  would  be  42/.  7s.  6d. 

20  quarters  when  160  were  produced,  which  at  £4  10  0  would  be  £90  0  0 

30  quarters  .  150  4  16  0  ...  144  0  0 

40  quarters  .  140  5  2  10  ...  205  13  4 

C  100  \  f  100 

Corn  rent  would  increase  in  the  )  200  (  and  money  rent  in  the  )  212 

proportion  of  j  300  (  proportion  of  )  340 

(  400  J  l  485 


{  5,i  1 


CHAPTER  III. 


ON  THE  RENT  OF  MINES. 

The  metals,  like  other  things,  are  obtained  by  labour.  Nature, 
indeed,  produces  them ;  but  it  is  the  labour  of  man  which  extracts 
tTTcTrrTrSnr  tide-  bowels  of  the  earth,  and  prepares  them  for  our 
service. 

Mines,  as  well  as  land,  generally  pay  a  rent  to  their  owner ;  and 
this  rent,  as  well  as  the  rent  of  land,  is  the  effect,  and  never  the 
cause  of  the  high  value  of  their  produce. 

~~tl‘  there  wore  abundance  or  equally  fertile  mines,  which  any  one 
might  appropriate,  they  could  yield  no  rent ;  the  value  of  their 
produce  would  depend  on  the  quantity  of  labour  necessary  to 
extract  the  metal  from  the  mine  and  bring  it-  to  market. 

•  But  there  are  mines  of  various  qualities,  affording  very  different 
results,  with  equal  quantities  of  labour.  The  metal  produced  from 
the  poorest  mine  that  is  worked,  must  at  least  have  an  exchangeable 
value,  not  only  sufficient  to  procure  all  the  clothes,  food,  and  other 
necessaries  consumed  by  those  employed  in  working  it,  and  bringing, 
the  produce  to  market,  but  also  to  afford  the  common  and  ordinary 
profits  to  him  who  advances  the  stock  necessary  to  carry  on  the 
undertaking.  The  return  for  capital  from  the  poorest  mine  paying- 
no  rent,  would  regulate  the  rent  of  alf  t Pc' other  more  productive 
-triin^T  This  mine  is  supposed  to  yield  the  usual  profits  of  stock. 
All  that  the  other  mines  produce  more  than  this,  will  necessarily 
be  paid  to  the  owners  for  rent.  Since  this  principle  is  precisely 
the  same  as  that  which  we  have  already  laid  down  respecting  land, 
it  will  not  be  necessary  further  to  enlarge  on  it. 

It  will  be  sufficient  to  remark,  that  the  same  general  rule  which 
regulates  the  value  of  raw  produce  and  manufactured  commodities, 
is  applicable  also  to  the"  metals  ;  their  value  depending  not  on  the 
rate  of  profits,  nor  on  the  rate  of  wages,  nor  on  the  rent  paid  for 
mines,  but  on  the  total  quantity  of  labour  necessary  to  obtain  the 
metal,  and  to  bring  it  to  market. 

Like  every  other  commodity,  the  value  of  the  metals  is  subject 
to  variation.  Improvements  may  be  made  in  the  implements  and  p 
machinery  used  in  mining,  which  may  considerably  abridge  labour : 
new  and  more  productive  mines  may  be  discovered,  in  which,  with 
the  same  labour,  more  metal  may  be  obtained ;  or  the  facilities  of 


ON  THE  RENT  OF  MINES. 


40 

bringing  it  to  market  may  be  increased.  In  either  of  these  cases 
the  metals  would  fall  in  value,  and  would  therefore  exchange  for 
a  less  quantity  of  other  things.  On  the  other  hand,  from  the  in¬ 
creasing  difficulty  of  obtaining  the  metal,  occasioned  by  th&  greater 
depth  at  which  the  mine  must  be  worked,  and  the  accumulation  of 
water,  or  any  other  contingency,  its  value  compared  with  that  of 
other  things,  might  be  considerably  increased. 

It  has  therefore  been  justly  observed,  that  however  honestly  the 
coin  of  a  country  may  conform  to  its  standard,  money  made  of  gold 
and  silver  is  still  liable  to  fluctuations  in  value,  not  only  to  acci¬ 
dental  and  temporary,  but  to  permanent  and  natural  variations,  in 
I  he  same  manner  as  other  commodities. 

By  the  discovery  of  America,  and  the  rich  mines  in  which  it 
abounds,  a  very  great  effect,  was  produced  on  the  natural  price  of 
the  precious  metals.  This  effect  is  by  many  supposed  not  yet  to 
have  terminated.  It  is  probable,  however,  that  all  the  effects  on 
the  value  of  the  metals,  resulting  from  the  discovery  of  America 
have  long  ceased ;  and  if  any  fall  has  of  late  years  taken  place  in 
their  value,  it  is  to  be  attributed  to  improvements  in  the  mode  of 
working  the  mines. 

From  whatever  cause  it  may  have  proceeded,  the  effect  has  been 
>  so  slow  and  gradual,  that  little  practical  inconvenience  has  been 
felt  from  gold  and  silver  being  the  general  medium  in  which  the 
value  of  alf**ofTfekVtl lings  is  estimated.  Though  undoubtedly  a 
N  variable  measure  or  'value,  there  is  probably  no  commodity  subject 
to  fewer  variations.  This  and  the  other  advantages  which  these 
metals  possess,  such  as  their  hardness,  their  lnall^aiulty,  their  divi¬ 
sibility,  and  many  more,  have  justly  secured  the  preference  every 
where  given  to  them,  as  a  standard  for  the  money  of  civilized 
countries. 

If  equal  quantities  of  labour,  with  equal  quantities  of  fixed  capital, 
I  could  at  all  times  obtain,  from  that  mine  which  paid  no  rent, 
I  equal  quantities  of  gold,  gold  would  be  as  nearly  an  invariable 
I  measure  of  value,  as  we  could  in  the  nature  of  things  possess.  The 
quantity  indeed  would  enlarge  with  the  demand,  but  its  value 
would  be  invariable,  and  it  would  be  eminently  well  calculated  to 
measure  the  vai’ying  value  of  all  other  things.  I  have  already  in 
a  former  part  of  this  work  considered  gold  as  endowed  with  this 
uniformity,  and  in  the  following  chapter  I  shall  continue  the  supposi¬ 
tion.  In  speaking  therefore  of  varying  price,  the  variation  will  be 
always  considered  as  being  in  the  commodity,  and  never  in  the 
medium  in  which  it  is  estimated 


CHAPTER  IV. 


l»aij 


ON  NATURAL  AND  MARKET  PRICE. 

In  making  labour  the  foundation  of  the  value  of  commodities,  and 
the  comparative  quantity  of  labour  ■which  is  necessary  to  their 
production,  the  rule  which  determines  the  respective  quantities  of 
goods  which  shall  he  given  in  exchange  for  each  other,  lpusi  not 
be  supposed  to  deny  the  accidental  and  temporary  deviations  of  the 
actual  or  market  price  of  commodities  from  this,  their  primary  and 
natural  price. 

In  the  ordinary  course  of  events,  there  is  no  commodity  which 
continues  for  any  length  of  time  to  he  supplied  precisely  in  that 
degree  of  abundance,  which  the  wants  and  wishes  of  mankind 
require,  and  therefore  there  is  none  which  is  not  subject  to  acci¬ 
dental  and  temporary  variations  of  price. 

It  is  only  in  consequence  of  such  variations,  that  capital  is 
apportioned  precisely,  in  the  requisite  abundance  and  no  more,  to 
the  production  of  the  different  commodities. which  happen  to  be  in 
demand.  With  jtli£_rise_.or  iidl  of  price,  profits  are  elevated  above, 
or  depressed  below,  their  general  level ;  and  capital  is  either  encour- 
agedto  enter  into,  or  is  warned  to  depart  from,  the  particular  employ¬ 
ment  in  which  the  variation  has  taken  place, 

Whilst  Every  man  is  free  to  employ  his  capital  where  he  pleases, 
lie  will  naturally  seek  for  it  that  employment  which  is  most  advan¬ 
tageous;  he  will  naturally  be  dissatisfied  with  a  profit  of  10  per  cent., 
if  by  removing  his  capital  lie  can  obtain  a  profit  of  15  percent. 
This  restless  desire  on  the  part  of  all  the  employers  of  stock,  to 
quit  a  less  profitable  for  a  more  advantageous  business,  has  a 
strong  tendency  to  equalize  the  rate  of  profits  of  all,  or  to  fix 
them  iu  such  proportions  as  may,  in  the  estimation  of  the  parties, 
compensate  for  any  advantage  which  one  may  have,  or  may  appear 
to  have,  over  the  other.  It  is  perhaps  very  difficult  to  trace  the 
steps  by  which  this  change  is  effected  :  it  is  probably  effected,  by 
a  manufacturer  not  absolutely  changing  his  employment,  but  only 
lessening  the  quantity  of  capital  he  has  in  that  employment.  In 
all  rich  countries,  there  is  a  number  of  men  forming  what  is  called 
the  monied  class  ;  these  men  are  engaged  in  no  trade,  but  live  on 
the  interest  of  their  money,  which  is  employed  in  discounting  bills, 
or  in  loans  to  the  more  industrious  part  of  the  community.  The 
bankers  too  employ  a  large  capital  on  the  same  objects.  The  capital 


'18 


OX  NATURAL  AND  MARKET  TRICE. 


so  employed  forms  a  circulating  capital  of  a  Large  amount,  aid  is 
employed,  in  larger  or  smaller  proportions,  by  all  the  diffc'cnt 
trades  of  a  country.  There  is  perhaps  no  manufacturer,  however 
rich,  who  limits  his  business  to  the  extent  that  his  own  funds  iQ$fer 
will  allow  :  he  has  always  some  portion  of  this  floating  capn  0f 
increasing  or  diminishing  according  to  the  activity  of  the  demand 
for  his  commodities.  When  the  demand  for  silks  increases,  and 
that  for  cloth  diminishes,  the  clothier  does  not  remove  with  his 
capital  to  the  silk  trade,  but  he  dismisses  some  of  his  workmen,  he 
discontinues  his  demand  for  the  loan  from  bankers  and  monied  men  ; 
while  the  case  of  the  silk  manufacturer  is  the  reverse  :  he  wishes 
to  employ  more  workmen,  and  thus  his  motive  for  borrowing  is 
increased  ;  he  borrows  more,  and  thus  capital  is  transferred  from 
one  employment  to  another,  without  the  necessity  of  a  manufac¬ 
turer  discontinuing  his  usual  occupation.  When  we  look  to  the 
markets,  of  a  large  town,  and  observe  how  regularly  they  are 
supplied  both  with  home  and  foreign  commodities,  in  the  quantity 
in  which  they  are  required,  under  all  the  circumstances  of  varying 
demand,  arising  from  the  caprice  of  taste,  or  a  change  in  the  amount 
of  population,  without  often  producing  either  the  effects  of  a  glut 
from  a  too  abundant  supply,  or  an  enormously  high  price  from  the 
supply  being  unequal  to  the  demand,  we  must  confess  that  the 
principle  which  apportions  capital  to  each  trade  in  the  precise 
amount  that  it  is  required,  is  more  active  than  is  generally  supposed. 

A  capitalist,  in  seeking  profitable  employment  for  his  funds,  will 
naturally  take  into  consideration  all  the  advantages  which  one  1 
occupation  possesses  over  another.  He  may  therefore  be  willing 
to  forego  a  part  of  his  money  profit,  in  consideration  of  the  security, 
cleanliness,  ease,  or  any  other  real  or  fancied  advantage  which  one 
employment  may  possess  over  another. 

If  from  a  consideration  of  these  circumstances,  the  profits  of  stock 
should  be  so  adjusted,  that  in  one  trade  they  were  20,  in  another 
25,  and  in  another  30  per  cent.,  they  Avould  probably  continue  per¬ 
manently  with  that  relative  difference,  and  with  that  difference  only; 
for  if  any  cause  should  elevate  the  profits  of  one  of  these  trades  10 
per  cent.,  either  these  profits  would  be  temporary,  and  would  soon 
again  fall  back  to  their  usual  station,  or  the  profits  of  the  others 
would  be  elevated  in  the  same  proportion. 

The  present  time  appears  to  be  one  cf  the  exceptions  to  the  just¬ 
ness  of  this  remark.  The  termination  of  the  war  has  so  deranged 
the  division  which  before  existed  of  employments  in  Europe,  that 
every  capitalist  has  not  yet  found  his  place  in  the  new  division 
which  has  now  become  necessary. 

Let  us  suppose  that  all  commodities  are  at  their  natural  price, 
and  consequently  that  the  profits  of  capital  in  all  employments  are 
exactly  at  the  same  rate,  or  differ  only  so  much  as,  in  the  estimation 
of  the  parties,  is  equivalent  to  any  real  or  fancied  advantage  which 
they  possess  or  forego.  Suppose  now  that  a  change  of  fashion 


ON  NATURAL  AND  MARKET  PRICE. 


49 


should  increase  the  demand  for  silks,  and  lessen  that  for  woollens  , 
their  natural'  price,  the  quantity  75f  labour  necessary  to"  their  pro- ' 
diicfibn,  "would  continue  unaltered,  but  the  market  price  of  silks 
would  rise,  and  that  of  TvoollenJVofiTd  fall ;  and  consequently  the 
profits  of  the  silk  manufacturer  would  be  above,  whilst  those  of  the 
woollen  manufacturer  would  be  below,  the  general  and  adjusted  rate 
of  profits.  Not  only  the  profits,  but  the  wages  of  the.  workmen, 
would  be  affected  in  these  employments.  This  increased  demand 
for  silks  would,  however,  soon  be  supplied,  by  the  transference  of 
capital  and  labour  from  the  woollen  to  the  silk  manufacture ;  when 
the  market  prices  of  silks  and  woollens  would  again  approach  their 
natural  prices,  and  then  the  usual  profits  would  be  obtained  by  the 
respective  manufacturers  of  those  commodities. 

It  i&  then  the  desire,  which  every  capitalist  has,  of  diverting  his 
funds  from  a  less  to  a  more  -profitable .  employment,  that  prevents 
the  market  price  of  commodities  from  continuing  for  any  length  of 
time  either  much  abbvej  or  muc'h'  below  their  natural  price.  It  is 
this  competition  which  so  adjusts  tdie  changeable  value  of  commo¬ 
dities,  that  after  paying  the  wages  for  the  labour  necessary  to  their 
production,  and  all  other  expenses  required  to  put  the  capital  em¬ 
ployed  in  its  original  state  of  efficiency,  the  remaining  value  or 
overplus  will  in  each  trade  be  in  proportion  to  the  value  of  the 
capital  employed. 

In  the  7th  chap,  of  the  Wealth  of  Nations,  all  that  concerns  this 
question  is  most  ably  treated.  Having  fully  acknowledged  the 
temporary  effects  which,  in  particular  employments  of  capital,  may 
be  produced  on  the  prices  of  commodities,  as  well  as  on  the  wages 
of  labour,  and  the  profits  of  stock,  by  accidental  causes,  without 
influencing  the  general  price  of  commodities,  wages,  or  profits,  since 
these  effects  are  equally  operative  in  all  stages  of  society,  we  will 
leave  them  entirely  out  of  our  consideration,  whilst  we  arc  treating 
of  the  laws  which  regulate  natural  prices,  natural  wages,  and  natural 
profits,  effects  totally  independent  of  these  accidental  causes.  In 
speaking,  then,  of  the  exchangeable  value  of  commodities,  or  the 
power  of  purchasing  possessed  by  any  one  commodity,  I  mean  always 
that  power  which  it  would  possess,  if  not  disturbed  by  any  tempo¬ 
rary  or  accidental  cause,  and  which  is  its  natural  price. 


D 


[  50  ] 


CHAPTER  \T. 


ON  WAGES. 

Labour,  like  all  other  things  which  are  purchased  and  sold,  and 
which  may  be  increased  or  diminished  in  quantity,  lias  its  natural 
and  its  market  price.  The  natural  price  of  labour  is  that  price 
which  is  necessary  to  enable  the  labourers,  (The '  with  another,  to 
subsist" aiid  to  perpetuate  their  race,  without,  either  increase  or 
diminution. 

~Th<W [lower  of  the  labourer  to  support  himself,  and  the  family 
which  may  be  necessary  to  keep  up  the  number  of  labourers, Hoes 
not  depend  on  the  quantity  of  money  which  lie  may  receive  for 
wages," but  on  the  quantity  of  food,  necessaries,  and  conveniences 
become  essential  to  him  from  habit,  which  that  money  will  purchase. 
The  natural  price  of  labour,  therefore,  depends  on  the  price  of  the 
food,  necessaries,  and  conveniences  required  for  the  support  of  the 
labourer  and  his  family.  With  a  rise  in  the  price  of  food  and 
necessaries,  the  natural  price  of  labour  will  rise  ;  with  the  fall  in 
their  price,  the  natural  price  of  labour  will  fall. 

With  the  progress  of  society  the  natural  price  of  labour  has  always 
^tendency  to  rise,  because  one  of  the  principal  commodities  % 
which  its  natural  price  is  regulated,  has  a  tendency  to  become  dearer, 
from  the  greater  difficulty  of  producing  it.  As,  however,  the 
improvements  in  agriculture,  the  discovery  of  new  markets,  whence 
provisions  may  be  imported,  may  for  a  time  counteract  the  tendency 
to  a  rise  in  the  price  of  necessaries,  and  may  even  occasion  their 
natural  price  to  fall,  so  will  the  same  causes  produce  the  corrc- 
■~"spondent  effects  on  the  natural  price  of  labour. 

The  natural  price  of  all  commodities,  excepting  raw  produce  and 
labour,  has  a  tendency  to  fall,  in  the  progress  of  wealth  and  popu¬ 
lation  ;  for  though,  on  one  hand,  they  are  enhanced  in  real  value, 
from  the  rise  in  the  natural  price  of  the  raw  material  of  which  they 
are  made,  this  is  more  than  counterbalanced  by  the  improvements 
in  machinery,  by  the  better  division  and  distribution  of  labour,  and 
by  the  increasing  skill,  both  in  science  and  art,  of  the  producers. 

The  market  price  of  labour  is  the  price  which  is  really  paid  for  it, 
y  from  the  natural  operation  of  the  proportion  of  the  supply  to  the 
demand ;  labour  is  dear  when  it  is  scarce,  and  cheap  when  it  is 
plentiful.  However  much  the  market  price  of  labour  may  deviate 


ON  WAGES. 


51 


from  its  natural  price,  it  lias,  like  commodities,  a  tendency  to  con¬ 
form  to  it. 

It  is  when  the  market  price  of  labour  exceeds  its  natural  price,- 
that  the  condition  of  the  labourer  is  flourishing  and  happy,  that  hey 
has  it  in  his  power  to  command  a  greater  proportion  of  the  neces-r 
saries  and  enjoyments  of  life,  and  therefore  to  rear  a  healthy  and 
numerous  family.  When,  however,  by  the  encouragement  which 
high  wages  give  to  the  increase  of  population,  the  number  of 
labourers  is  increased,  wages  again  fall  to  their  natural  price,  and 
indeed  from  a  reaction  sometimes  fall  below  it. 

When  the  market  price  of  labour  is  below  its  natural  price,  the 
condition  of  the  labourers  is  most  wretched  :  then  poverty  deprives 
them  of  those  comforts  which  custom  renders  absolute  necessaries. 

It  is  only  after  their  privations  have  reduced  their  number,  or  the 
demand  for  labour  has  increased,  that  the  market  price  of  labour 
will  rise  to  its  natural  price,  and  that  the  labourer  will  have  the 
moderate  comforts  which  the  natural  rate  of  wages  will  afford. 

Notwithstanding  the  tendency  of  wages  to  conform  to  their 
natural  rafej  their  market  rate  may,  in  an  improving  society,  for  an 
indefinite  period,  be  constantly  above  it ;  for  no  sooner  may  the 
impulse, "which  an  increased  capital  gives  to  a  new  demand  for 
labour,  be  obeyed,  than  another  increase  of  capital  may  produce  the 
same  effect ;  and  thus,  if  the  increase  of  capital  be  gradual  and  con-ts/^ 
stant,  the  demand  for  labour  may  give  a  continued  stimulus  to  an 
increase  of  people. 

Capital  is  that  part  of  the  wealth  of  a  country  which  is  employed 
in  production,  and  consists  of  food,  clothing,  tools,  raw  materials, 
machinery,  &c.,  necessary  to  cive  effect  to  labour. 

Capital  may  increase  in  quantity  at  the  same  time  that  its  value 
rises.  An  addition  may  be  made  to  the  food  and  clothing  of  a 
country,  at  the  same  time  that  more  labour  may  be  required  to 
produce  the  additional  quantity  than  before  ;  in  that  case  not  only 
the  quantity,  but  the  value  of  capital  will  rise. 

Or  capital  may  increase  without  its  value  increasing,  and  even 
while  its  value  is  actually  diminishing  ;  not  only  may  an  addition 
be  made  to  the  food  and  clothing  of  a  country,  but  the  addition  may 
be  made  by  the  aid  of  machinery,  without  any  increase,  and  even 
with  an  absolute  diminution  in  the  proportional  quantity  of  labour 
required  to  produce  them.  The  quantity  of  capital  may  increase, 
while  neither  fhe  whole  together,  nor  any  part  of  it  singly,  will  have 
a  greater  value  than  before,  but  may  actually  have  a  less. 

In  the  first  case,  the  natural  price  of  labour,  which  always  depends 
on  the  price  of  food,  clothing,  and  other  necessaries,  will  rise ;  in 
the  second,  it  will  remain  stationary,  or  fall ;  but  in  both  cases  the 
market  rate  of  wa  ges  will  rise,  for  in  proportion  to  the  increase  of 
capital  will  be  t1  e  increase  in  the  demand  for  labour  ;  in  proportion 
to  the  work  to  be  done  will  be  the  demand  for  those  who  are  to 
do  it. 


52 


ON  WAGES. 


In  both  cases,  too,  the  market  price  of  labour  will  rise  above  ita 
natural  price  ;  and  in  both  cases  it  will  have  a  tendency  to  conform 
to  its  natural  price,  but  in  the  first  case  this  agreement  will  be  most 
speedily  effected.  The  situation  of  the  labourer  will  be  improved, 
but  not  much  improved  ;  for  the  increased  price  of  food  and  neces¬ 
saries  will  absorb  a  large  portion  of  his  increased  wages ;  conse¬ 
quently  a  small  supply  of  labour,  or  a  trifling  increase  in  the  popu¬ 
lation,  will  soon  reduce  the  market  price  to  the  then  increased 
natural  price  of  labour. 

In  the  second  case,  the  condition  of  the  labourer  will  be  very 
greatly  improved ;  he  will  receive  increased  money  wages,  without 
having  to  pay  any  increased  price,  and  perhaps  even  a  diminished 
price  for  the  commodities  which  he  and  his  family  consume  ;  and 
it  will  not  be  till  after  a  great  addition  has  been  made  to  the  popu¬ 
lation,  that  the  market  price  of  labour  will  again  sink  to  its  then 
low  and  reduced  natural  price. 

Thus,  then,  with  every  improvement  of  society,  with  every  in-' 
crease  in  its  capital,  the  market  wages  of  labour  will  rise ;  but  the 
permanence  of  their  rise  will  depend  on  the  question,  whether  the 
natural  price  of  labour  has  also  risen  ;  and  this  again  will  depend 
on  the  rise  in  the  natural  price  of  those  necessaries  on  which  the 
wages  of  labour  are  expended. 

>  It  is  not  to  be  understood  that  the  natural  price  of  labour,  esti¬ 
mated  even  in  food  and  necessaries,  is  absolutely  fixed  and  constant. 

,  It  varies  at  different  times  in  the  same  country,  and  very  materially 
differs  in  different  countries.*  It  essentially  depends  on  the  habits 
and  customs  of  the  people.  An  English  labourer  would  consider 
his  wages  under  their  natural  rate,  and  too  scanty  to  support  a 
family,  if  they  enabled  him  to  purchase  no  other  food  than  potatoes, 
and  to  live  in  no  better  habitation  than  a  mud  cabin ;  yet  these 
moderate  demands  of  nature  are  often  deemed  sufficient  in  countries 
where  “  man’s  life  is  cheap,”  and  his  wants  easily  satisfied.  Many 
of  the  conveniences  now  enjoyed  in  an  English  cottage,  would  have 
been  thought  luxuries  at  an  earlier  period  of  our  history. 

'  From  manufactured  commodities  always  falling,  and  raw  produce 
always  rising,  with  the  progress  of  society,  such  a  disproportion  in 
their  relative  value  is  at  length  created,  that  in  rich  countries  a 
labourei’,  by  the  sacrifice  of  a  very  small  quantity  only  of  his  food, 
is  able  to  provide  liberally  for  all  his  other  wants. 

Independently  of  the  variations  in  the  value  of  money,  which 
necessarily  affect  money  wages,  but  which  we  have  here  supposed 

*  “The  shelter  and  the  clothing  which  are  indispensable  in  one  country  may  be  no 
way  necessary  in  another;  and  a  labourer  in  Ilindostan  may  continue  to  work  with 
perfect  vigour,  though  receiving,  as  his  natural  wages,  only  such  a  supply  of  covering 
as  would  be  insufficient  to  preserve  a  labourer  in  Russia  from  perishing.  Even  in 
countries  situated  in  the  same  climate,  different  habits  of  living  will  often  occasion 
variations  in  the  natural  price  of  labour,  as  considerable  as  those  which  are  produced 
by  natural  causes.” — P.  68.  An  Essay  on  the  External  Corn  Trade  by  R.  Torrens.  Esq. 

The  whole  of  this  subject  is  most  ably  illustrated  by  Colonel  Torrens. 


ON  WAGES. 


53 


to  have  no  operation,  as  we  have  considered  money  to  be  uniformly "1 
of  the  same  value,  it  appears  then  that  wages  am. subject  to  a  rise  I 
orjallimm  two.  causes  : — 

1st,  The  supply  and  demand  of  labourers. 

2dly,  The  price  of  the  commodities  on  which  the  wages  of  labour 
are  expanded. 

In  different  stages  of  society,  the  accumulation  of  capital,  or  of 
the  means  of  employing  labour,  is  more  or  less  rapid,  and  must  in 
all  cases  defend  on  the  productive  powers  of  labour.  JThe  produc¬ 
tive  powers  of  labour  are  generally  greatest  when  there  is  an  abun¬ 
dance  of  fertile  land  :  at  such  periods  accumulation  is  often  so 
rapid,  that  labourers  cannot  be  supplied  with  the  same  rapidity  as 
capital. 

It  has  been  calculated,  that  under  favourable  circumstances  popu-  ^ 
lation  may  be  doubled  in  twenty-five  years  ;  but  under  the  same 
I  fa  vourable  circumstances  the  whole  capital  of  a  country  might  pos-  l 

(sibly  be  doubled  in  a  shorter  period.  In  that  case,  wages  during  l| 
the  whole  period  would  have  a  tendency  to  rise,  because  the 
demand  for  labour  woidd  increase  still  faster  than  the  supply. 

In  new  settlements,  where  the  arts  and  knowledge  of  countries 
far  advanced  in  refinement  are  introduced,  it  is  probable  that  capital 
has  a  tendency  to  increase  faster  than  mankind ;  and  if  the  defi¬ 
ciency  of  labourers  were  not  supplied  by  more  populous  countries, 
this  tendency  would  very  much  raise  the  price  of  labour.  In  pro¬ 
portion  as  these  countries  become  populous,  and  land  of  a  worse 
quality  is  taken  into  cultivation,  the  tendency  to  an  increase  of 
capital  diminishes  ;  for  the 'surplus  produce  remaining,  after  satis¬ 
fying  the  wants  of  the  existing  population,  must  necessarily  be  in 
proportion  to  the  facility  of  production,  viz.  to  the  smaller  number 
of  persons  employed  in  production.  Although,  then,  it  is  probable, 
that  under  the  most  favourable  circumstances,  the  power  of  pro¬ 
duction  is  still  greater  than  that  of  population,  it  will  not  long  con¬ 
tinue  so  ;  for  the  land  being  limited  in  quantity,  and  differing  in 
quality,  with  every  increased  portion  of  capital  employed  on  it, 
there  will  be  a  decreased  rate  of  production,  whilst  the  power  of 
population  continues  always  the  same. 

In  those  countries  where  there  is  abundance  of  fertile  land,  but 
where,  from  the  ignorance,  indolence,  and  barbarism  of  the  inhabi¬ 
tants,  they  are  exposed  to  all  the  evils  of  want  and  famine,  and 
where  it  has  been  said  that  population  puesses  against  the  means  ol 
subsistence,  a  very  different  remedy  should  be  applied  from  that 
which  is  necessary  in  long  settled  countries,  where,  from  the  dimin¬ 
ishing  rate  of  the  supply  of  raw  produce,  all  the  evils  of  a  crowded 
population  are  experienced.  In  the  one  case,  the  evil  proceeds  ^ 
from  bad  government,  from  the  insecurity  of  property,  and  from  a 
want  of  education  in  all  ranks  of  the  people.  To  be  made  happier 
they  require  only  to  be  better  governed  and  instructed,  as  the  aug¬ 
mentation  of  capital,  beyond  the  augmentation  of  people,  would  be 


51 


ON  WAGES. 


the  inevitable  result.  No  increase  in  the  population  can  be  too 
great,  as  the  powers  of  production  are  still  greater.  In  the  other 
case,  the  population  increases  faster  than  the  funds  required  for  its 
support.  Every  exertion  of  industry,  unless  accompanied  by  a 
diminished  rate  of  increase  in  the  population,  will  add  to  the  evil, 
for  production  cannot  keep  pace  with  it. 
r'  AVitli  a  population  pressing  against  the  means  of  subsistence, 

/  the  only  remedies  are  either  a  reduction  of  people,  or  a  more  rapid 
/  accumulation  of  capital.  In  rich  countries,  where  all  the  fertile 
Wand  is  already  cultivated,  the  latter  remedy  is  neither  very  prac¬ 
ticable  nor  very  desirable,  because  its  effect  would  be,  if  pushed 
very  far,  to  render  all  classes  equally  poor.  But  in  poor  countries, 
where  there  are  abundant  means  of  production  in  store,  from  fertile 
land  not  yet  brought  into  cultivation,  it  is  the  only  safe  and  effica¬ 
cious  means  of  removing  the  evil,  particularly  as  its  effect  would  be 
to  elevate  all  classes  of  the  people. 

The  friends  of  humanity  cannot  but  wish  that  in  all  countries  the 
labouring  classes  should  have  a  taste  for  comforts  and  enjoyments, 
and  that  they  should  be  stimulated  by  all  legal  means  in  their 
exertions  to  procure  them.  There  cannot  be  a  better  security 
against  a  superabundant  population.  In  those  countries,  where 
the  labouring  classes  have  the  fewest  wants,  and  are  contented 
with  the  cheapest  food,  the  people  are  exposed  to  the  greatest 
vicissitudes  and  miseries.  They  have  no  place  of  refuge  from 
calamity ;  they  cannot  seek  safety  in  a  lower  station  ;  they  are 
already  so  low,  that  they  can  fall  no  lower.  On  any  deficiency  of 
the  chief  article  of  their  subsistence,  there  are  few  substitutes  of 
which  they  can  avail  themselves,  and  dearth  to  them  is  attended 
with  almost  all  the  evils  of  famine. 

In  the  natural  advance  of  society,  the  wages  of  labour  will  have 
a  tendency  to  fall,  as  far  as  they  are  regulated  by  supply  and 
demand ;  for  the  supply  of  labourers  will  continue  to  increase  at 
the  same  rate,  whilst  the  demand  for  them  will  increase  at  a  slower 
\  rate.  If,  for  instance,  wages  were  regulated  by  a  yearly  increase 
'  of  capital,  at  the  rate  of  2  per  cent.,  they  would  fall  when  it  accu¬ 
mulated  only  at  the  rate  of  11,-  per  cent.  They  would  fall  still 
lower  when  it  increased  only  at  the  rate  of  1,  or  \  per  cent.,  and 
would  continue  to  do  so  until  the  capital  became  stationary,  when 
wages  also  would  become  stationary,  and  be  only  sufficient  to  keep 
up  the  numbers  of  the  actual  population.  I  say  that,,  under  these 
circumstances,  wages  would  fall,  if  they  were  regulated  only  by  the 
supply  and  demand  of  labourers  ;  but  we  must  not  forget  that 
wages  are  also  regulated  by  the  prices  of  the  commodities  on  which 
they  are  expended. 

As  population  increases,  these  necessaries  will  be  constantly 
rising  in  price,  because  more  labour  will  be  necessary  to  produce 
'them.  If,  then,  the  money  wages  of  labour  should  fall,  whilst 
every  commodity  on  which  the  wages  of  labour  were  expended 


ON  WAGES. 


55 


rose,  the  labourer  would  be  doubly  affected,  and  would  be  soon 
totally  deprived  of  subsistence.  Instead,  therefore,  of  the  money 
wages  of  labour  falling,  they  would  rise  ;  but  they;  would  not  rise 
'  sufficiently  to  enable  the  labourer  to  purchase  as  many  comforts 
and  necessaries  as  he  did  before  the  rise  in  the  price  of  those  com¬ 
modities.  If  his  annual  wages  were  before  247.,  or  six  quarters  of 
corn  when  the  price  was  47.  per  quarter,  he  would  probably  receive 
only  the  value  of  five  quarters  when  corn  rose  to  51.  per  quarter. 

But  five  quarters  would  cost  251. ;  lie  would,  therefore,  receive  an 
addition  in  his  money  wages,  though  with  that  addition  he  would 
be  unable  to  furnish  himself  with  the  same  quantity  of  corn  and 
other  commodities  which  he  had  before  consumed  in  his  family. 

Notwithstanding,  then,  that  the  labourer  would  be  really  worse  . 
paid,  yet  this  increase  in  his  wages  would  necessarily  diminish  the 
profits'of  the  manufacturer ;  for  his  goods  would  sell  at  no  higher 
price;  and  yet  the  expense  of  producing  them  would  be  increased. 
This,  however,  will  be  considered  in  our  examination  into  the 
principles  which  regulate  profits. 

It  appears,  then,  that  the  same  cause  which  raises  rent,  namely, 
the  increasing  difficulty  of  providing  an  additional  quantity  of  food 
with  the  same  proportional  quantity  of  labour,  will  also  raise 
wages ;  aiwT.t^^fprc,  if  money  be  of  an  unvarying  value,  both 
rent  an^A  agcs  wij3  have  a  tendency  to  rise  with  the  progress  of 
wealth  and  population. 

But  there  is  this  essential  difference  between  the  rise  of  rent  and  » 
tlie  rise  of  wages.  The  rise  in  the  money  value  of  rent  is  accom-/«T 
panied  by  an  increased  share  of  the  'produce';'  not  only  is  the  land¬ 
lord’s  money  rent  greater,  but  his  corn  rent  also  ;  he  will  have 
more  corn,  and  each  defined  measure  of  that  corn  will  exchange  for 
a  greater  quantity  of  all  other  goods  which  have  not  been  raised  in 
value.  The  fate  of  the  labourer  will  be  less  happy  ;  he  will  receive  ' 
more  money  wages,  it  is  true,  but  his  corn  wages  will  be  reduced ; 
and  not  only  his  command  of  corn,  but  his  general  condition  will' 
be  deteriorated,  by  his  finding  it  more  difficult  to  maintain  the 
market  rate  of  wages  above  their  natural  rate.  While  the  price  of 
corn  rises  10  per  cent.,  wages  will  always  rise  less  than  10  per 
cent.,  but  rent  will  always  rise  more  ;  the  condition  of  the  labourer 
w  ill  generally  decline,  and  that  of  the  landlord  will  always  be 
improved. 

When  wheat  was  at  47.  per  quarter,  suppose  the  labourer’s  wages 
to  be  24/.  per  annum,  or  the  value  of  six  quarters  of  wheat,  and 
suppose  half  his  wages  to  be  expended  on  wheat,  and  the  other 
halfy  or  12/.,  on  other  things.  He  would  receive 


24/.  14s. 
25/.  10s. 
26/.  8s. 

27/.  8s.  Gd. 


when  wheat  was  at 


(4/.  4s.  8d. 
)4/.  10  s.  (_ 

J  4/.  16s.  f 

(.51.  2s.  lOd. ) 


r  5.83  quarters. 

or  the  value  of  )  (‘ua“crs' 
j  5'dO  quarters. 

(  5.33  quarters. 


He  would  receive  these  wages  to  enable  him  to  live  just  as  well, 


56 


ON  AVAGE 3. 


and  no  better,  than  before  ;  for  when  corn  was  at  4 /.  per  quarter, 


be  would  expend  for  three  quarters  of  corn,  at  4/.  per  qr.  .  12/. 

and  on  other  things . 12/. 

O 


24/. 

.When  wheat  was  4/.  4s.  8d.,  three  quarters,  which  he  and  his 


family  consumed,  would  cost  him . 12/.  14s. 

other  things  not  altered  in  price . 12/. 


24/.  14s. 


When  at  4/.  10s.,  three  quarters  of  wheat  would  cost  .  13/.  10s. 

and  other  things . 12/. 

25/.  10s. 

When  at  4/.  16s.,  three  quarters  of  wheat . 14/.  8s. 

other  things  . . 12/. 


26/.  8s. 


When  at  51.  2s.  10d.,  three  qrs.  of  wheat  would  cost  15/.  8s.  6d. 
other  things  . 12/. 

27/.  8s.  6d. 

In  proportion  as  corn  became  dear,  he  would  receive  less  corn 
wages,  but  his  money  wages  would  always  increase,  whilst  his 
enjoyments,  on  the  above  supposition,  would  be  precisely  the  same. 
But  as  other  commodities  would  be  raised  in  price  in  proportion  as 
raw  produce  entered  into  their  composition,  he  would  have  more  to 
pay  for  some  of  them.  Although  his  tea,  sugar,  soap,  candles,  and 
house  rent,  would  probably  be  no  dearer,  lie  would  pay  more  for 
his  bacon,  cheese,  butter,  linen,  shoes,  and  cloth  ;  and  therefore, 
even  with  the  above  increase  of  wages,  his  situation  would  be  com¬ 
paratively  worse.  But  it  may  be  said  that  I  have  been  considering 
the  effect  of  wages  on  price,  on  the  supposition  that  gold,  or  the 
metal  from  which  money  is  made,  is  the  produce  of  the  country  in 
which  wages  varied  ;  and  that  the  consequences  which  I  have 
deduced  agree  little  with  the  actual  state  of  things,  because  gold  is 
a  metal  of  foreign  production.  The  circumstance,  however,  of  gold 
being  a  foreign  production,  will  not  invalidate  tire  truth  of  the 
argument,  because  it  may  be  shown,  that  whether  it  were  found  at 
home,  or  were  imported  from  abroad,  the  effects  ultimately,  and, 
indeed,  immediately,  would  be  the  same. 

When  wages  rise,  it  is  generally  because  the  increase  of  wealth 
and  capital  have  occasioned  a  new  demand  for  labour,  which  will 


ON  AVAGES. 


57 


infallibly  be  attended  with  an  increased  production  of  commo¬ 
dities.  To  circulate  these  additional  commodities,  even  at  the 
same  prices  as  before,  more  money  is  required,  more  of  this  foreign 
commodity  from  Avhich  money  is  made,  and  Avhich  can  only  be 
obtained  by  importation.  Whenever  a  commodity  is  required  in 
greater  abundance  than  before,  its  relative  value  rises  compara¬ 
tively  with  those  commodities  Avith  Avhich  its  purchase  is  made.  If 
more  hats  Avere  Avanted,  their  price  Avould  rise,  and  more  gold 
would  be  given  for  them.  If  more  gold  Avere  required,  gold  Avould 
rise,  and  hats  would  fall  in  price,  as  a  greater  quantity  of  hats  and 
of  all  other  things  Avould  then  be  necessary  to  purchase  the  same 
quantity  of  gold.  But  in  the  case  supposed,  to  say  that  commo¬ 
dities  will  rise,  because  Avages  rise,  is  to  affirm  a  positive  contra¬ 
diction  ;  for  Ave,  first,  say  that  gold  will  rise  in  relative  value  in 
consequence  of  demand,  and,  secondly,  that  it  Avill  fall  in  relative 
value  because  prices  will  rise,  two  effects  which  are  totally  incom¬ 
patible  Avith  each  other.  To  say  that  commodities  are  raised  in 
price,  is  the  same  thing  as  to  say  that  money  is  loAvered  in  relative 
value  ;  for  it  is  by  commodities  that  the  relative  value  of  gold  is 
estimated.  If,  then,  all  commodities  rose  in  price,  gold  could  not 
come  from  abroad  to  purchase  those  dear  commodities,  but  it  Avould 
go  from  home  to  be  employed  Avith  advantage  in  purchasing  the 
comparatively  cheaper  foreign  commodities.  It  appears,  then,  that 
the  rise  of  Avages  Avill  not  raise  the  prices  of  commodities,  Avhether 
the  metal  from  Avhich  money  is  made  be  produced  at  home  or  in  a 
foreign  country.  All  commodities  cannot  rise  at  the  same  time 
without  an  addition  to  the  quantity  of  money.  This  addition 
could  not  be  obtained  at  home,  as  Ave  have  already  shown  ;  nor 
could  it  be  imported  from  abroad.  To  purchase  any  additional 
quantity  of  gold  from  abroad,  commodities  at  home  must  be  cheap, 
not  dear.  The  importation  of  gold,  and  a  rise  in  the  price  of  all^k- 
home-made  commodities  with  Avhich  gold  is  purchased  or  paid  for, 
are  effects  absolutely  incompatible.  The  extensive  use  of  paper 
money  does  not  alter  this  question,  for  paper  money  conforms,  or 
ought  to  conform,  to  the  value  of  gold,  and  therefore  its  value  is 
influenced  by  such  causes  only  as  influence  the  value  of  that 
metal. 

These,  then,  are  the  laws  by  which  wages  are  regulated,  and  by"f 
Avhich  the  happiness,  of  far  the  greatest  part  of  every  community  is 
governed.  Like  all  other  contracts,  wages  should  be  left  to  the 
fair  and  free  competition  of  the  market,  and  should  never  be  con- 
tf5!ted~by  the  interference  of  the  legislature. 

The  clear  and  direct  tendency  of  the  poor  Iaavs  is  in  direct 
opposition  to  these  obvious  principles  :  it  is  not,  as  the  legislature 
benevolently  intended,  to  amend  the  condition  of  the  poor,  but  to 
deteriorate  the  condition  of  both  poor  and  rich  ;  instead  of  making 
the  poor  rich,  they  are  calculated  to  make  the  rich  poor ;  and 
Avhilst  the  present  Lavs  are  in  force,  it  is  quite  in  the  natural  order 


58 


ON  WAGES. 


of  things  that  the  fluid  for  the  maintenance  of  the  poor  should  pro¬ 
gressively  increase  till  it  has  absorbed  all  the  net  revenue  of  the 
country,  or  at  least  so  much  of  it  as  the  state  shall  leave  to  us,  after 
satisfying  its  own  never-failing  demands  for  the  public  expen¬ 
diture.* 

This  pernicious  tendency  of  these  laws  is  no  longer  a  mystery, 
since  it  has  been  fully  developed  by  the  able  hand  of  Mr  Malthus  ; 
and  every  friend  to  the  poor  must  ardently  wish  for  their  abolition. 
Unfortunately,  however,  they  have  been  so  long  established,  and 
the  habits  of  the  poor  have  been  so  formed  upon  their  operation, 
that  to  eradicate  them  with  safety  from  our  political  system, 
requires  the  most  cautious  and  skilful  management.  It  is  agreed 
by  all  who  are  most  friendly  to  a  repeal  of  these  laws,  that  if  it  be 
desirable  to  prevent  the  most  overwhelming  distress  to  those  for 
whose  benefit  they  were  erroneously  enacted,  their  abolition  should 
be  effected  by  the  most  gradual  steps. 

It  is  a  truth  which  admits  not  a  doubt,  that  the  comforts  and 
well-being  of  the  poor  cannot  be  permanently  secured  without  some 
regard  on  their  part,  or  some  effort  on  the  part  of  the  legislature, 
to  regulate  the  increase  of  their  numbers,  and  to  render  less  frequent 
among  them  early  and  improvident  marriages.  The  operation  of 
the  system  of  poor  laws  has  been  directly  contrary  to  this.  They  f 
have  rendered  restraint  superfluous,  and  have  invited  imprudence,^ 
.jjy-offejiftg  it  a  portion  of  the  wages  of  prudence  and  industry,  f  1 

The  nature  of  the  evil  points  out  the  remedy.  By  gradually  ; 

Sontracting  the  sphere  of  the  poor  laws ;  by  impressing  on  the  j 
>oor  the  value  of  independence,  by  teaching  them  that  they  must/ 
ook  not  to  systematic  or  casual  charity,  but  to  their  own  exertions 
or  support,  that  prudence  and  fore-thought  are  neither  unnecessary 
'nor  unprofitable  virtues,  we  shall  by  degrees  approach  a  sounder 
yiriiLmore  healthful  state. 

v  rbo  scheme  for  the  amendment  of  the  poor  laws  merits  the  least 
Nj  attention,  which  has  not  their  abolition  for  its  ultimate  object ;  and 
die  is  the  best  friend  to  the  poor,  and  to  the  cause  of  humanity,  who 


*  With  Mr  Buchanan,  in  the  following  passage,  if  it  refers  to  temporary  states  of 
I  misery,  I  so  far  agree,  that  “  the  great  evil  of  the  labourer’s  condition  is  poverty,  arising 
J  either  from  a  scarcity  of  food  or  of  work  ;  and  in  all  countries,  laws  without  number 
have  been  enacted  for  his  relief.  But  there  are  miseries  in  the  social  state  which  legis- 
|  lation  cannot  relieve ;  and  it  is  useful  therefore  to  know  its  limits,  that  we  may  not, 
v  by  aiming  at  what  is  impracticable,  miss  the  good  which  is  really  in  our  power.” — 
Buchanan ,  p.  61. 

t  The  progress  of  knowledge  manifested  upon  this  subject  in  the  House  of  Commons 
since  1796,  has  happily  not  been  very  small,  as  may  be  seen  by  contrasting  the  late 
report  of  the  committee  on  the'jjoor  laws,  and  the  following  sentiments  of  Mr  Pitt,  in 
that  year “  Let  us,”  said  he,  “  make  relief  in  cases  where  there  are  a  number  of 
children  a  matter  of  right  and  honour,  instead  of  a  ground  of  opprobrium  and  con¬ 
tempt.  This  will  make  a  large  family  a  blessing,  and  not  a  curse ;  and  this  will  draw 
a  proper  line  of  distinction  between  those  who  are  able  to  provide  for  themselves  by 
their  labour,  and  those  who,  after  having  enriched  their  country  with  a  number  of 
children,  have  a  claim  upon  its  assistance  for  support.” — Hansard’s  Parliamentary 
History,  vol.  xxxii.  p.  710. 


OX  WAGES. 


Oil 


can  point  out  how  this  end  can  be  attained  with  the  most  security, 
and  at  the  same  time  with  the  least  violence.  It  is  not  by  raising- 
in  any  manner  different  from  the  present,  the  fund  from  which,  the 
poor  are  supported,  that  the  evil  can  be  mitigated.  It  woidd  not 
only  be  no  improvement,  but  it  would  be  an  aggravation  of  the 
distress  which  we  wish  to  see  removed,  if  the  fund  were  increased 
in  amount,  or  were  levied  according  to  some  late  proposals,  as  a 
general  fund  from  the  country  at  large.  The  present  mode  of  its 
collection  and  application  has  served  to  mitigate  its  pernicious  effects. 
Each  parish  raises  a  separate  fund  for  the  support  of  its  own  poor. 
Hence  it  becomes  an  object  of  more  interest  and  more  practicability 
to  keep  the  rates  low,  than  if  one  general  fund  were  raised  for  the 
relief  of  the  poor  of  the  whole  kingdom.  A  parish  is  much  more 
interested  in  an  economical  collection  of  the  rate,  and  a  sparing  dis¬ 
tribution  of  relief,  when  the  whole  saving  will  be  for  its  own  benefit, 
than  if  hundreds  of  other  parishes  were  to  partake  of  it. 

It  is  to  this  cause,  that  we  must  ascribe  the  fact  of  the  poor  laws 
not  having  yet  absorbed  all  the  net  revenue  of  the  country ;  it  is 
to  the  rigour  with  which  they  are  applied,  that  we  are  indebted  for 
their  not  having  become  overwhelmingly  oppressive.  If  by  law 
every  human  being  wanting  support  could  be  sure  to  obtain  it,  and 
obtain  it  in  such  a  degree  as  to  make  life  tolerablv  comfortable, 
theory  would  lead  us  to  expect  that  all  other  taxes  together  would 
be  light  compared  with  the  single  one  of  poor  rates.  The  principle 
of  gravitation  is  not  more  certain  than  the  tendency  of  such  laws 
to  change  wealth  and  power  into  misery  and  weakness;  to  call 
away  the  exertions  of  labour  from  every  object,  except  that  of  pro- 
viding  mere  subsistence ;  to  confound  all  intellectual  distinction : 
to  busy  the  mind  continually  in  supplying  the  body’s  wants :  until 
at  last  all  classes  should  be  infected  with  the  plague  of  universal 
poverty.  Happily  these  laws  have  been  in  operation  during  a  period 
of  progressive  prosperity,  when  the  funds  for  the  maintenance  of 
labour  haveregularly  increased,  and  when  an  increase  of  population 
would  be  naturally  called  for.  But  if  our  progress  should  become 
more  slow ;  if  we  should  attain  the  stationary  state,  from  which  I 
trust  we  are  yet  far  distant,  then  will  the  pernicious  nature  ot  these 
laws  become  more  manifest  and  alarming ;  and  then,  too,  will  their 
removal  be  obstructed  bv  many  additional  difficulties. 


CHAPTER  VI. 


ON  PROFITS. 

The  profits  of  stock,  in  different  employments,  having  been  shown 
to  bear  a  proportion  to  each  other,  and  to  have  a  tendency  to  vary 
all  in  the  same  degree  and  in  the  same  direction,  it  remains  for  us 
to  consider  what  is  the  cause  of  the  permanent  variations  in  the 
rate  of  profit,  and  the  consequent  permanent  alterations  in  the  rate 
of  interest. 

We  have  seen  that  the  price*  of  corn  is  regulated  by  the  quantity 
of  labour  necessary  to  produce  it,  with  that  portion  of  capital  which 
pays  no  rent.  We  have  seen,  too,  that  all  manufactured  commo¬ 
dities  rise  and  fall  in  price,  in  proportion  as  more  or  less  labour 
becomes  necessary  to  their  production.  Neither  the  farmer  who 
cultivates  that  quantity  of  land,  which  regulates  price,  nor  the 
manufacturer,  who  manufactures  goods,  sacrifice  any  portion  of  the 
produce  for  rent.  The  whole  value  of  their  commodities  is  divided 
into  two  portions  only :  one  constitutes  the  profits  of  stock,  the 
other  the  wages  of  labour. 

Supposing  corn  and  manufactured  goods  always  to  sell  at  the  same 
price,  profits  would  be  high  or  low  in  proportion  as  wages  were  low 
or  high.  But  suppose  corn  to  rise  in  price  because  more  labour  is 
necessary  to  produce  it ;  that  cause  will  not  raise  the  price  of  manu¬ 
factured  goods  in  the  production  of  which  no  additional  quantity  of 
labour  is  required.  then,  wages  continued  the  same,  the  profits 
of  manufacturers  would  remain  the  same ;  but  if,  as  is  absolutely 
Y  certain,  wages  should  rise  with  the  rise  of  corn,  then  their  profits 
would  necessarily  fall./ 

If  a  manufacturer  always  sold  his  goods  for  the  same  money,  for 
1000/.,  for  example,  his  profits  would  depend  on  the  price  of  the 
labour  necessary  to  manufacture  those  goods.  His  profits  would 
be  less  when  wages  amounted  to  800/.  than  when  he  paid  only  600/. 

1  In  proportion  then  as  wages  rose,  would  profits  fall.  But  if  the 

*  The  reader  is  desired  to  hear  in  mind,  that  for  the  purpose  of  making  the  subject 
more  clear.  I  consider  money  to  be  invariable  in  value,  and  therefore  every  variation 
of  price  to  be  referable  to  an  alteration  in  the  value  of  the  commodity. 


ON  PROFITS. 


61 


price  of  raw  prodace  would  increase,  it  may  be  asked,  whether  the 
farmer  at  least  would  not  have  the  same  rate  of  profits,  although 
he  should  pay  an  additional  sum  for  wages  ?  Certainly  not :  for 
he  will  not  only  have  to  pay,  in  common  with  the  manufacturer,  an 
increase  of  wages  to  each  labourer  he  employs,  but  he  will  be 
obliged  either  to  pay  rent,  or  to  employ  an  additional  number  of 
labourers  to  obtain  the  same  produce ;  and  the  rise  in  the  price 
of  raw  produce  will  be  proportioned  only  to  that  rent,  or  that 
additional  number,  and  will  not  compensate  him  for  the  rise  of 
wages. 

If  both  the  manufacturer  anti  farmer  employed  ten  men,  on  wages, 
rising  from  24k  to  2 5k  per  annum  per  man,  the  whole  sum  paid  by 
each  would  be  250 k  instead  of  240 k  This  is,  however,  the  whole 
addition  that  would  be  paid  by  the  manufacturer  to  obtain  the  same 
quantity  of  commodities  ;  but  the  farmer  on  new  land  would  pro¬ 
bably  be  obliged  to  employ  an  additional  man,  and  therefore  to  pay 
an  additional  sum  of  25k  for  wages  ;  and  the  farmer  on  the  old  land 
would  be  obliged  to  pay  precisely  the  same  additional  sum  of  25 k 
for  rent ;  without  which  additional  labour,  corn  would  not  have 
risen,  nor  rent  have  been  increased.  One  will  therefore  have  to 
pay  275k  for  wages  alone,  the  other,  for  wages  and  rent  together : 
each  25 k  more  than  the  manufacturer:  for  this  latter  25 k  the 
farmer  is  compensated  by  the  addition  to  the  price  of  raw  produce, 
and  therefore  his  profits  still  conform  to  the  profits  of  the  manu¬ 
facturer.  As  this  proposition  is  important,  I  will  endeavour  still 
further  to  elucidate  it. 

We  have  shown  that  in  early  stages  of  society,  both  the  landlord’s 
and  the  labourer’s- share  of  the  value  of  the  produce  of  the  earth 
would  be  but  small ;  and  that  it  would  increase  in  proportion  to 
the  progress  of  wealth,  and  the  difficulty  of  procuring  food.  We 
have  shown,  too,  that  although  the  value  of  the  labourer’s  portion 
will  be  increased  by  the  high  value  of  food,  his  real  share  will  be 
diminished ;  whilst  that  of  the  landlord  will  not  only  be  raised  in 
value,  but  will  also  be  increased  in  quantity. 

The  remaining  quantity  of  the  produce  of  the  land,  after  the 
landlord  and  labourer  are  paid,  necessarily  belongs  to  the  farmer, 
and  constitutes  the  profits  of  his  stock.  But  it  may  be  alleged, 
that  though,  as  society  advances,  his  proportion  of  the  whole  pro¬ 
duce  will  be  diminished,  yet  as  it  will  rise  in  value,  he,  as  well  as 
the  landlord  and  labourer,  may,  notwithstanding,  receive  a  greater 
value. 

It  maybe  said,  for  example,  that  when  corn  rose  from  4k  to  10k, 
the  180  quarters  obtained  from  the  best  land  would  sell  for  1800k 
instead  of  720k;  and,  therefore,  though  the  landlord  and  labourer 
be  proved  to  have  a  greater  value  for  rent  and  wages,  still  the  value 
of  the  farmer’s  profit  might  also  be  augmented.  This,  however,  is 
impossible,  as  1  shall  now  endeavour  to  show. 

In  the  first  place,  the  price  of  corn  would  rise  only  in  propor- 


ON  PROFITS. 


025 


tion  to  the  increased  difficulty  of  growing  it  on  land  of  a  worse 
Quality. 

It  has  been  already  remarked,  that  if  the  labour  of  ten  men  will, 
on  land  of  a  certain  quality,  obtain  180  quarters  of  wheat,  and  its 
value  be  4/.  per  quarter,  or  720k;  and  if  the  labour  of  ten  addi¬ 
tional  men  will,  on  the  same  or  any  other  land,  produce  only  170 
quarters  in  addition,  wheat  would  rise  from  4/.  to  4k  4s.  8d. ;  for 
170  :  180  :  :  4k  :  4k  4s.  8d.  In  other  words,  as  for  the  production 
of  170  quarters,  the  labour  of  ten  men  is  necessary,  in  the  one  case, 
and  only  that  of  9.44  in  the  other,  the  rise  would  be  as  9.44  to  10, 
or,  as  4k  to  4k  4s.  8d.  In  the  same  manner  it  might  be  shown, 
that  if  the  labour  of  ten  additional  men  would  only  produce  160 
quarters,  the  price  would  further  rise  to  4k  10s. ;  if  150,  to  4k  16s., 
&c.  &c. 

But  when  180  quarters  were  produced  on  the  land  paying  no  rent, 


and  its  price  was  4k  per  quarter,  it  is  sold  for  .  .  .  .  £720 

And  when  170  quarters  were  produced  on  the  land  paying 

no  rent,  and  the  price  rose  to  4k  4s.  8d.,  it  still  sold  for  .  720 

So  160  quarters  at  4k  10s.  produce . 720 

And  150  quarters  at  4k  16s.  produce  the  same  sum  of  .  .  720 


e 


Now,  it  is  evident,  that  if,  out  of  these  equal  values,  the  farmer  is 
at  one  time  obliged  to  pay  wages  regulated  by  the  price  of  wheat 
at  4k,  and  at  other  times  at  higher  prices,  the  rate  of  his  profits 
will  diminish  in  proportion  to  the  rise  in  the  price  of  corn. 

In  this  case,  therefore,  I  think  it  is  clearly  demonstrated  that  a 
rise  in  the  price  of  corn,  which  increases  the  money  wages  of  the 
labourer,  diminishes  the  money  value  of  the  farmer’s  profits. 

But  the  case  of  the  farmer  of  the  old  and  better  land  will  be  in 
no  way  different ;  he  also  will  have  increased  wages  to  pay,  and 
will  never  retain  more  of  the  value  of  the  produce,  however  high 
may  be  its  price,  than  720Z.  to  be  divided  between  himself  and  his 
always  equal  number  of  labourers ;  in  proportion  therefore  as  they 
get  more,  he  must  retain  less. 

When  the  price  of  corn  was  at  4k,  the  whole  180  quarters 
belonged  to  the  cultivator,  and  he  sold  it  for  720k  When  corn 
rose  to  4/.  4s.  8d.,  he  was  obliged  to  pay  the  value  of  ten  quar¬ 
ters  out  of  his  180  for  rent,  consequently  the  remaining  170 
yielded  him  no  more  than  720 k  :  when  it  rose  further  to  4k  10s., 
he  paid  twenty  quarters,  or  their  value,  for  rent,  and  conse¬ 
quently  only  retained  160  quarters,  which  yielded  the  same  sum  of 


720k 


It  will  be  seen,  then,  that  whatever  rise  may  take  place  in  the 
price  of  corn,  in  consequence  of  the  necessity  of  employing  more 
labour  and  capital  to  obtain  a  given  additional  quantity  of  pro¬ 
duce,  such  rise  will  always  be  ecmallcd  in  value  by  the  additional 


ON  PROFITS. 


63 


rent,  or  additional  labour  employed ;  so  that  whether  corn  sells 
for  4 /.,  41.  10s.,  or  5/.  2s.  lOd^the  farmer  will  obtain  for  that  which 
.remains  .to  him,  after  paying,  rent,  the,. same  real  value,  Thus 
we  see,  that  whether  the  produce  belonging  to  the  farmer  be  180, 

170,  160,  or  150  quarters,  he  always  obtains  the  same  sum  of 
720/.  for  it ;  the  price  increasing  in  an  inverse  proportion  to  the 
quantity. 

Rent,  then,  it  appears,  always  falls  on  the  consumer,  and  never 
on  the  farmer ;  for  if  the  produce  of  his  farm  should  uniformly  be 
180  quarters,  with  the  rise  of  price,  he  would  retain  the  value  of  a 
less  quantity  for  himself,  and  give  the  value  of  a  larger  quantity 
to  his  landlord ;  but  the  deduction  would  be  such  as  to  leave  him 
always  the  same  sum  of  720/. 

It  will  be  seen  too,  that,  in  all  cases,  the  same  sum  of  720/.  must' 
be  divided  between  wages  and  profits.  If  the  value  of  the  raw- 
produce  from  the  land  exceed  this  value,  it  belongs  to  rent,  what¬ 
ever  may  be  its  amount.  If  there  be  no  excess,  there  will  be  no 
rent.  Whether  wages  or  profits  rise  or  fall,  it  is  this  sum  of  720/. 
from  which  they  must  both  be  provided.  On  the  one  hand,  profits 
can  never  rise  so  high  as  to  absorb  so  much  of  this  720/.  that  i  y. 
enough  will  not  be  left  to  furnish  the  labourers  with  absolute  o 

necessaries ;  on  the  other  hand,  wages  can  never  rise  so  high  as  to 
leave  no  portion  of  this  sum  for  profits. 

"'Thus  in  evefy~case7~ggrrcultural.  as  well  as  manufacturing  profits  i  & 
arc  lowered  by  a  rise  in  the  price  of  raw  produce,  if  it  be  accom¬ 
panied  by  •;  rise  of  wages.*  If  the  farmer  gets  no  additional  value 
for  the  corn  which  remains  to  him  after  paying  rent,  if  the 
manufacturer  gets  no  additional  value  for  the  goods  which  he 
manufactures,  and  if  both  are  obliged  to  pay  a  greater  value  in  , 
wages,  can  any  point  be  more  clearly  established  than  that  profits 
must  fall,  with  a  rise  of  wages  ? 

The  farmer,  then,  although  he  pays  no  part  of  his  landlord’s  rent, 
that  being  always  regulated  by  the  price  of  produce,  and  invariably 
falling  on  the  consumers,  has  however  a  very  decided  interest  in 
keeping  rent  low,  or  rather  in  keeping  the  natural  price  of  produce 
low.  As  a  consumer  of  raw  produce,  and  of  those  things  into  which 
raw  produce  enters  as  a  component  part,  he  will,  in  common  with 
all  other  consumers,  be  interested  in  keeping  the  price  low.  But  he 
is  most  materially  concerned  with  the  high  price  of  corn  as  it  affects 
wages.  With  every  rise  in  the  price  of  corn,  he  will  have  to  pay, 
out  of  an  equal  and  unvarying  sum  of  720/.,  an  additional  sum  for 
wages  to  the  ten  men  whom  he  is  supposed  constantly  to  employ. 

We  have  seen,  in  treating  on  wages,  that  they  invariably  rise  with 
the  rise  in  the  price  of  raw  produce.  On  a  basis  assumed  for  the 

*  The  reader  is  aware,  that  wc  are  leaving  out  of  our  consideration  the  accidental 
variations  arising  from  bad  and  good  seasons,  or  from  the  demand  increasing  or 
diminishing  by  any  sudden  effect  on  the  state  of  oopulation.  We  are  speaking  of  the 
natural  and  constant,  not  of  the  accidental  and  fluctuating,  price  of  corn. 


61 


ON  PROFITS. 


purpose  of  calculation,  page  56,  it  will  be  seen  that  if  when  wheat 
is  at  4 k  per  quarter,  wages  should  be  24 /.  per  annum, 


£ 

s. 

D. 

£ 

s. 

D. 

'4 

4 

81 

|  ( 24 

14 

0 

4 

4 

10 

16 

ol 

°l 

>-  wages  would  be  -1 

10 

8 

0 

0 

5 

2 

lOj 

>  ~  (27 

8 

6 

When  Wheat  is  at 


Now,  of  the  unvarying  fund  of  7201.  to  be  distributed  between 
labourers  and  farmers, 


Wien  the  pr 
of  Wheat  ‘ 


£  s.  n. 
0  0 
4  S 
4  10  0 


(  the  labourer 
ill  receive 


f  24 

rers  % 


£ 

240 

247 


.  .  <  4  iu  u  >  .  <  aoo 

atlsat  4  16  0  (  wlU  rccclve  )  2G4 
V  5  2  10  )  (  274 


S.  D. 
0  0 
0  0 
0  0 
0  0 
5  0. 


the  farmer 
’will  receive* 


’480  0  C 

473  0  0 


465 
456 
445  15 


0  O 

o  o 


And  supposing  that  the  original  capital  of  the  farmer  was  3000k, 
the  profits  of  his  stock  being  in  the  first  instance  480k,  would  be  at 
the  rate  of  16  percent.  When  his  profits  fell  to  473k,  they  would 
be  at  the  rate  of  15.7  per  cent. 


465k 

456k 

445k 


15.5 

15.2 

14.8 


But  the  rate  of  profits  will  fall  still  more,  because  the  capital  ol 
the  farmer,  it  must  be  recollected,  consists  in  a  great  measure  of 
raw  produce,  such  as  his  com  and  lmy-ricks,  his  unthreshed  wheat 
and  barley,  his  horses  and  cows,  which  would  all  rise  in  price  in 
consequence  of  the  rise  of  produce.  His  absolute  profits  would  fall 
from  480/.  to  445k  15s.;  but  if,  from  the  cause  which  I  have  just 
stated,  his  capital  should  rise  from  3000/.  to  3,200/.,  the  rate  of  his 
profits  would,  when  corn  was  at  5k  2s.  10d.,  be  under  14  per  cent. 

If  a  manufacturer  had  also  employed  3000k  in  his  business,  he 
would  be  obliged,  in  consequence  of  the  rise  of  wages,  to  increase 


*  The  180  quarters  of  corn  would  be  divided  in  the  following  proportions  between 
landlords,  farmers,  and  labourers,  with  the  above-named  variations  in  the  value  of  corn. 


Price  per  qr. 

Kent. 

Profit. 

Wages. 

Total. 

£  S.  D. 

In  Wheat. 

In  Wheat. 

In  Wheat. 

4  0  0 

None. 

1 20  qrs. 

60  qrs.  q 

4  4  8 

10  qrs. 

111.7 

58.3  1 

4  10  0 

20 

103.4 

56.6  > 

■180 

4  16  0 

30 

95 

55  1 

5  2  10 

40 

86.7 

53.3  / 

,  under  the  same  circumstances,  money  rent,  wages,  and  profit,  would  be  as  : 

Price  per  qr. 

Rent.  Profit. 

Wages.  Total. 

£  S.  D. 

£  s.  d.  £ 

S.  D. 

£ 

S.  D.  £ 

S. 

D. 

4  0  0 

None.  480 

0  0 

240 

0  0  720 

0 

0 

4  4  8 

42  7  6  473 

0  0 

247 

0  0  762 

7 

6 

4  10  0 

90  0  0  465 

O  0 

255 

0  0  810 

0 

0 

4  16  0 

144  0  O  456 

0  0 

264 

0  0  S64 

0 

0 

5  2  10 

205  13  4  445 

15  0 

274 

5  0  925 

13 

4 

ON  PROFITS. 


65 

ins  capital,  in  order  to  be  enabled  to  carry  on  the  same  business. 

If  his  commodities  sold  before  for  720/.  they  would  continue  to  sell 
at  the  same  price  ;  but  the  wages  of  labour,  which  were  before  240/., 
would  rise,  when  corn  was  at  51.  2s.  10d.,  to  274/.  5s.  In  the  first 
case  he  would  have  a  balance  of  480/.  as  profit  on  3000/.,  in  the 
second  he  would  have  a  profit  only  of  445/.  15s.,  on  an  increased 
capital,  and  therefore  his  profits  would  conform  to  the  altered  rate 
of  those  of  the  farmer. 

There  are  few  commodities  which  are  not  more  or  less  affected 
in  their  price  by  the  rise  of  raw  produce,  because  some  raw  material 
from  the  land  enters  into  the  composition  of  most  commodities. 
Cotton  goods,  linen,  and  cloth,  will  all  rise  in  price  with  the  rise  of^ 
wheat ;  but  they  rise  on  account  of  the  greater  quantity  of  labour 
expended  on  the  raw  material  from  which  they  are  made,  and  not 
because  more  was  paid  by  the  manufacturer  to  the  labourers  whom 
he  employed  on  those  commodities.  ■/" 

In  all  cases,  commodities  rise  because  more  labour  is  expended  *j 
on  them,  and  not  because  the  labour  which  is  expended  on  them  is  ' 
at  a  liigner  valucT"  Articles  ot  "lewellerv.  ot'  iron,  of  plate,  and  of 
copper,  would  not  rise,  because  none  of  the  raw  produce  from  the 
surface  of  the  earth  enters  into  their  composition. 

It  may  be  said  that  I  have  taken  it  for  granted,  that  money  wages 
would  rise  with  a  rise  in  the  price  of  raw  produce,  but  that  this  is 
by  no  means  a  necessary  consequence,  as  the  labourer  may  be  con¬ 
tented  with  fewer  enjoyments.  It  is  true  that  the  wages  of  labour 
may  previously  have  been  at  a  high  level,  and  that  they  may  bear 
some  reduction.  If  so,  the  fall  of  profits  will  be  checked  ;  but  it  is 
impossible  to  conceive  that  the  money  price  of  wages  should  fall,  or 
remain  stationary  with  a  gradually  increasing  price  of  necessaries  ; 
and  therefore  it  may  be  taken  for  granted  that,  under  ordinary 
circumstances,  no  permanent  rise  takes  place  in  the  price  of  neces-  J 
saries,  without  occasioning,,  or  having  been  preceded  by,  a  rise  in 

The  effects  produced  on  profits  would  have  been  the  same,  or 
nearly  the  same,  if  there  had  been  any  rise  in  the  price  of  those 
other  necessaries,  besides  food,  on  which  the  wages  of  labour  are 
expended.  The  necessity  which  the  labourer  would  be  under  of 
paying  an  increased  price  for  such  necessaries,  would  oblige  him  to 
demand  more  wages ;  and  whatever  increases  wages,  -ps 

red unas-pR ifit .  But  supposcTfirrpITce  of  silk's,  velvets,  furniture, 
and  any  other  commodities,  not  required  by  the  labourer,  to  rise  in 
consequence  of  more  labour  being  expended  on  them,  would  not  . 
that  affect  profits?  Certainly  not:  for  nothing  can  affect  profits- 
but  a  rise  in  wages :  silks  and  velvets  are  not  consumed  by  the 
labourer,  and  therefore  cannot  raise  wages. 

TTTs  to  be  understood  that  I  am  speaking  of  profits  generally. 

I  have  already  remarked,  that  the  market  price  of  a  commodity 
may  exceed  its  natural  or  necessary  piIciyTTS'  it  may  be  produced 

R 


66 


ON  PROFITS. 


A 


r 


if 


in  loss  abundance  than  the  new  demand  for  it  requires.  This,  how 
ever,  is  but  a  temporary  effect.  The  high  profits  on  capital  employed 
in  producing  that  commodity,  will  naturally  attract  capital  to  that 
trade ;  and  as  soon  as  the  requisite  funds  are  supplied,  and  the 
quantity  of  the  commodity  is  duly  increased,  its  price  will  fall,  and 
the  profits  of  the  trade  will  conform  to  the  general  level.  A  fall 
in  the  general  rate  of  profits  is  by  no  means  incompatible  with  a 
partial  rise  of  profits  in  particular  employments.  It  is  through jthc 
"A*  inequality  of  profits,  that  capital  is  moved  from  one  employmentjto 
/  another.  Whilst,  then,  general  profits  are  falling,  and  gradually 
settling  at  a  lower  levpl  in  consequence  of  the  rise  of  wages,  and 
the  increasing  difficulty  of  supplying  the  increasing  population  -with 
necessaries,  the  profits  of  the  farmer  may,  for  an  interval  of  some 
little  duration,  be  above  the  former  level.  An  extraordinary  sti¬ 
mulus  may  be  also  given  for  a  certain  time,  to  a  particular  branch 
of  foreign  and  colonial  trade  :  but  the  admission  of  this  fact  by  no 
means  invalidates  the  theory,  that  profits  depend  on  high  or  low 
wages,  wages  on  the  price  of  necessaries,  and  the  price,  of  neces¬ 
saries  chiefly  on  the  price  of  food,  because  all  other  requisites  may 
be  increased  almost  without  limit. 

It  should  be  recollected  that  prices  always  vary  in  the  market, 
and  in  the  first  instance,  through  the  comparative  state  of  demand 
and  supply.  Although  cloth  could  be  furnished  at  40s.  per  yard, 
and  give  the  usual  profits  of  stock,  it  may  rise  to  60s.  or  80s.  from 
a  general  change  of  fashion,  or  from  any  other  cause  which  should 
suddenly  and  unexpectedly  increase  the  demand,  or  diminish  the 
supply  of  it. )  The  makers  of  cloth  will  for  a  time  have  unusual 
profits,  but  capital  will  naturally  flow  to  that  manufacture,  till  the 
supply  and  demand  are  again  at  their  fair  level,  when  the  price  of 
cloth  will  again  sink  to  40s.,  its  natural  or  necessary  price.  In  the 
same  manner,  with  every  increased  demand  for  corn,  it  may  rise 
so  high  as  to  afford  more  than  the  general  profits  to  the  farmer.  If 
there  be  plenty  of  fertile  land,  the  price  of  corn  will  again  fall  to 
its  former  standard,  after  the  requisite  quantity  of  capital  has  been 
employed  in  producing  it,  and  profits  will  be  as  before  ;  but  if  there 
be  not  plenty  of  fertile  land,  if,  to  produce  this  additional  quantity, 
more  than  the  usual  quantity  of  capital  and  labour  be  required,  corn 
will  not  fall  to  its  former  level.  Its  natural  price  will  be  raised, 
and  the  farmer,  instead  of  obtaining  permanently  larger  profits,  will 
find  himself  obliged  to  be  satisfied  with  the  diminished  rate  which 
is  the  inevitable  consequence  of  the  rise  of  wages,  produced  by  the 
rise  of  necessaries. 

The  natural  tendency  of  profits  then  is  to  fall ;  for,  in.  the  pro¬ 
gress  of  society  and  wealth,  the  additional  quantity  of  food  required 
is  obtained  by  the  sacrifice  of  more  and  more  labour.  This  ten¬ 
dency,  this  gravitation  as  it  were  of  profits,  is  happily-checked  at 
repeated  intervals  by  .the  improvements  in  machinery  connected 
with  the  production  of  necessaries,  as  well  as  by  discoveries  in  the 


ON  PROFITS. 


b/ 


science  of  agriculture,  which  enable  us  to  relinquish  a  portion  or  - 
labour  before  required,  and  therefore  to  lower  the  price  of  the  prime 
necessary  of  the  labourer.  The  rise  in  the  price  of  necessaries  and 
in  the  wages  of  labour  is,  however,  limited  ;  for  as  soon  as  wages 
should  be  equal  (as  in  the  case  formerly  stated)  to  720/.,  the  whole 
receipts  of  the  farmer,  there  must  be  an  end  of  accumulation  ;  for 
no  capital  can  then  yield  any  profit  whatever,  and  no  additional 
labour  can  be  demanded,  and  consequently  population  will  have 
reached  its  highest  point.  Long,  indeed,  before  this  period,  the 
very  low  rate  of  profits  will  have  arrested  all  accumulation,  and 
almost  the  whole  produce  of  the  country,  after  paying  the  labourers, 
will  be  the  property  of  the  owners  of  land  and  the  receivers  of  tithes — ^ 
and  taxes. 


Thus,  taking  the  former  very  imperfect  basis  as  the  grounds  of 
my  calculation,  it  would  appear  that  when  corn  was  at  20/.  per 
quarter,  the  whole  net  income  of  the  country  would  belong  to  the 
landlords,  for  then  the  same  quantity  of  labour  that  was  originally 
necessary  to  produce  180  quarters,  would  be  necessary  to  produce 
36 ;  since  20/.  :  4/.  :  :  180  :  36.  The  farmer,  then,  who  produced 
180  quarters,  (if  any  such  there  were,  for  the  old  and  new  capital 
employed  on  the  land  would  be  so  blended,  that  it  could  in  no  way 
be  distinguished),  would  sell  the 


the  value  of  144  qrs. 


180  qrs.  at  20?.  per  qr.  or  .......  11.3600 

(to  landlord  for  rent,  being  the  difference  between  36) 


and  180  qrs. 


2SS0 


36  qrs.  720 

the  value  of  36  qrs.  to  labourers,  ten  in  number, . 720 

leaving  nothing  whatever  for  profit. 

1  have  supposed  that  at  this  price  of  20/.  the  labourers  would  continue  to  consume 
three  quarters  each  per  annum,  or  .  .  .  L.60 

And  that  on  the  other  commodities  they  would  expend  12 

72  for  each  labourer. 


And  therefore  ten  labourers  would  cost  720/.  per  annum. 


In  all  these  calculations  I  have  been  desirous  only  to  elucidate  the 
principle,  and  it  is  scarcely  necessary  to  observe,  that  my  whole 
basis  is  assumed  at  random,  and  merely  for  the  purpose  of  exempli¬ 
fication.  The  results,  though  different  in  degree,  would  have  been 
the  same  in  principle,  however  accurately  J  might  have  set  out  in 
stating  the  difference  in  the  number  of  labourers  necessary  to  obtain 
the  successive  quantities  of  corn  required  by  an  increasing  popula- 
tion,  the  quantity  consumed  by  the  labourer’s  family,  &c.  &e.  My 
object  has  been  to  simplify  the  subject,  and  I  have  therefore  made 
no  allowance  for  the  increasing  price  of  the  other  necessaries, 
besides  food  of  the  labourer ;  an  increase  which  would  be  the  con¬ 
sequence  of  the  increased  value  of  the  raw  materials  from  which 


68 


ON  TROFITS. 


they  arc  made,  and  which  would  of  course  further  increase  wages, 
and  lower  profits. 

I  have  already  said,  that  long  before  this  state  of  prices  was  be¬ 
come  permanent,  there  would  be  no  motive  for  accumulation  ;  for 
no  one  accumulates  but  with  a  view  to  make  his  accumulation  pro¬ 
ductive,  and  it  is  only  when  so  employed  that  it  operates  on  profits. 
AVithout  a  motive  there  could  be  no  accumulation,  and  conso¬ 
rt  quently  such  a  state  of  prices  never  could  take  place.  The  farmer 
and  manufacturer  can  no  more  live  'without  profit,  than  the  labourer 
without  wages.  Their  motive  for  accumulation  will  diminish  with 
every  diminution  of  profit,  and  will  cease  altogether  when  their 
profits  are  so  low  as  not  to  afford  them  an  adequate  compensation 
fur  their  trouble,  and  the  risk  which  they  must  necessarily  encounter 
in  employing  their  capital  productively. 

I  must  again  observe,  that  the  rate  of  profits  would  fall  much 
more  rapidly  than  I  have  estimated  in  my  calculation  ;  for  the  value 
of  the  produce  being  what  I  have  stated  it  under  the  circumstances 
supposed,  the  value  of  the  farmer’s  stock  would  be  greatly  increased 
from  its  necessarily  consisting  of  many  of  the  commodities  which 
had  risen  in  value.  Before  corn  could  rise  from  4 /.  to  12 /.,  his 
capital  would  probably  be  doubled  in  exchangeable  value,  and  be 
worth  6000/.  instead  of  3000/.  If  then  his  profit  were  180/.,  or  6 
per  cent,  on  his  original  capital,  profits  would  not  at  that  time  be 
really  at  a  higher  rate  than  3  per  cent. ;  for  6000/.  at  3  per  cent, 
gives  180/. ;  and  on  those  terms  only  could  a  new  farmer  with 
6000/.  money  in  his  pocket  enter  into  the  farming  business. 

Many  trades  would  derive  some  advantage,  more  or  less,  from 
the  same  source.  The  brewer,  the  distiller,  the  clothier,  the  linen 
manufacturer,  would  be  partly  compensated  for  the  diminution  of 
their  profits,  by  the  rise  in  the  value  of  their  stock  of  raw  and 
finished  materials ;  but  a  manufacturer  of  hardware,  of  jewellery, 
and  of  many  other  commodities,  as  well  as  those  whose  capitals 
uniformly  consisted  of  money,  would  be  subject  to  the  whole  fall  in 
the  l’ate  of  profits,  without  any  compensation  whatever. 

We  should  also  expect  that,  however  the  rate  of  tire  profits  of 
stock  might  diminish  in  consequence  of  the  accumulation  of  capital 
on  the  land,  and  the  rise  of  wages,  yet’ that  the  aggregate  amount  of 
profits  would  increase.  Thus,  supposing  that,  with  repeated  accu- 
i n ulaTtoTnr'ofii'OOjOOO/.,  the  rate  of  profit  should  fall  from  20  to  19, 
to  18,  to  17  per  cent.,  a  constantly  diminishing  rate,  we  should 
expect  that  the  whole  amount  of  profits  received  by  those  succes¬ 
sive  owners  of  capital  would  be  always  progressive ;  that  it  would 
be  greater  when  the  capital  wras  200,000/.,  than  when  100,000/. ; 
still  greater  when  300,000/. ;  and  so  on,  increasing,  though  at  a 
diminishing  rate,  with  every  increase  of  capital.  This  progression, 
however,  is  only  true  for  a  certain  time;  thus,  19  per  cent,  on 
200,000/.  is  more  than  20  on  100,000/. ;  again,  18  per  cent,  on 
300,000/.  is  more  thaii  19  per  cent,  on  200,000/. ;  but  after  capital 


ON  PROFITS. 


GO 

lias  accumulated  to  a  large  amount,  and  profits  have  fallen,  the 
further  accumulation  diminishes  the  aggregate  of  profits.  Thus, 
suppose  the  accumulation  should  be  1,000,000/.,  and  the  profits  7 
per  cent.,  the  whole  amount  of  profits  will  be  70,000/. ;  now  if  an 
addition  of  100,000/.  capital  be  made  to  the  million,  and  profits 
should  fall  to  G  per  cent.,  G6,000/.  or  a  diminution  of  4000/.  will 
be  received  by  the  owners  of  stock,  although  the  whole  amount  of 
stock  will  be  increased  from  1,000,000/.  to  1,100,000/. 

There  can,  however,  be  no  accumulation  of  capital,  so  long  ajs 
stock  yields  any  profit  at  all,  without  its  yielding  not  only  an  in¬ 
cites  c ;of]Trod uce,  but  an  increase  of  valued  By  employing  100,000/. 
additional  capital,  no  part  of  the  former  capital  will  be  rendered  less 
productive.  The  produce  of  the  land  and  labour  of  the  country 
must  inci'ease,  and  its  value  will  be  raised,  not  only  by  the  value  of 
the  addition  which  is  made  to  the  former  cpiantity  of  productions, 
but  by  the  new  value  which  is  given  to  the  whole  produce  of  the  land, 
by  the  increased  difficulty  of  producing  the  last  portion  of  it.  When 
the  accumulation  of  capital,  however,  becomes  very  great,  notwith-  / 
standing  this  increased  value,  it  will  be  so  distributed  that  a  less^ 
value  than  before  will  be  appropriated  to  profits,  while  that  which 
is  devoted  to  rent  and  wages  will  be  increased.  Thus  with  suc¬ 
cessive  additions  of  100,000/.  to  capital,  with  a  fall  in  the  rate  of 
profits,  from  20  to  19,  to  18,  to  17  per  cent.,  &c.,  the  productions 
annually  obtained  will  increase  in  quantity,  and  be  of  more  that 
the  whole  additional  value,  which  the  additional  capital  is  calcu¬ 
lated  to  produce.  From  20,000/.  it  will  rise  to  more  than  39,000/., 
and  then  to  more  than  57,000/.,  and  when  the  capital  employed  is  a 
million,  as  we  before  supposed,  if  100,000/.  more  be  added  to  it, 
and  the  aggregate  of  profits  is  actually  lower  than  before,  more  than 
G000/.  will  nevertheless  be  added  to  the  revenue  of  the  country, 
but  it  will  be  to  the  revenue  of  the  landlords  and  labourers ;  they 
will  obtain  more  than  the  additional  produce,  and  will  from  their 
situation  be  enabled  to  encroach  even  on  the  former  gains  of  the 
capitalist.  Thus,  suppose  the  price  of  corn  to  be  4/.  per  quarter, 
and  that  therefore,  as  we  before  calculated,  of  every  720/.  remain¬ 
ing  to  the  farmer  after  payment  of  his  rent,  480/.  were  retained  by 
him,  and  240/.  were  paid  to  his  labourers  ;  when  the  price  rose  to 
(>/.  per  quarter,  he  would  be  obliged  to  pay  his  labourers  300/.  and 
retain  only  420/.  for  profits  :  he  would  be  obliged  to  pay  them 
300/.  to  enable  them  to  consume  the  same  quantity  of  necessaries 
as  before,  and  no  more.  Now  if  the  capital  employed  were  so  large  as 
to  yield  a  hundred  thousand  times  720/.  or  72,000,000/.,  the  aggre¬ 
gate  of  profits  would  be  48,000,000/.  when  wheat  was  at  4/.  per 
quarter;  and  if  by  employing  a  larger  capital,  105,000  times  720/. 
were  obtained  when  wheat  was  at  6/.,  or  75,000,000/.,  profits  would 
actually  fall  from  48,000,000/.  to  44,100,000/.  or  105,000  times  420/., 
and  wages  would  rise  from  24,000,000/.  to  31,500,000/.  Wages 
would  rise  because  more  labourers  would  be  employed,  in  proper- 


70 


ON  MOP  ITS. 


tion  to  capital ;  and  each  labourer  would  receive  more  money  wages  ; 
but  the  condition  of  the  labourer,  as  we  have  already  shown,  would 
be  worse,  inasmuch  as  he  would  be  able  to  command  a  less  quan¬ 
tity  of  the  produce  of  the  country.  The  only  real  gainers  would 
be  the  landlords  ;  they  would  receive  higher  rents,  first,  because 
produce  would  be  of  a  higher  value,  and  secondly,  because  they 
would  have  a  greatly  increased  proportion  of  that  produce. 

Although  a  greater  value  is  produced,  a  greater  proportion  of 
what  remains  of  that  value,  after  paying  rent,  is  consmu'etHby  the 
producers,  and  it  is  this,  and  this  alone,  which  regulates  profits. 
Whilst  the  laud  yields  abundantly,  wages  may  temporarily  nse7lmd 
the  producers  may  consume  more  than  their  accustomed  propor¬ 
tion  ;  but  the  stimulus  which  will  thus  be  given  to  population,  will 
speedily  reduce  the  labourers  to  their  usual  consumption.  But 
when  poor  lands  are  taken  into  cultivation,  or  when  more  capital 
and  labour  are  expended  on  the  old  land,  with  a  less  return  of  pro¬ 
duce,  the  effect  must  be  permanent.  A  greater  proportion  of  that 
part  of  the  produce  which  remains  to  be  divided,  after  paying  rent, 
between  the  owners  of  stock  and  the  labourers,  will  be  apportioned 
to  the  latter.  Each  man  may,  and  probably  will,  have  a  less  abso¬ 
lute  quantity  ;  but  as  more  labourers  are  employed  in  proportion  to 
the  whole  produce  retained  by  the  farmer,  the  value  of  a  greater 
proportion  of  the  whole  produce  will  be  absorbed  by  wages,  and 
consequently  the  value  of  a  smaller  proportion  will  be  devoted  to 
profits.  This  will  necessarily  be  rendered  permanent  by  the  laws 
of  nature,  which  have  limited  the  productive  powers  of  the  land. 

Thus  we  again  arrive  at  the  same  conclusion  which  we  have 
before  attempted  to  establish  : — that  in  all  countries,  and -all  times, 
profits  depend  on  the  quantity  of  labour  requisite  to  provide  neces- 
i  saries  for  the  labourers,  on  that  land  or  with  that  capital  which 
yields  no  rent.  The  effects  then  of  accumulation  will  be  different 
in  different  countries,  and  will  depend  chiefly  on  the  fertility  of  the 
land.  However  extensive  a  country  may  be  where  the  land  is  of  a 
poor  quality,  and  where  the  importation  of  food  is  prohibited,  the 
most  moderate  accumulations  of  capital  will  be  attended  with  great 
reductions  in  the  rate  of  profit,  and  a  rapid  rise  in  rent ;  and  on  the 
contrary  a  small  but  fertile  country,  particularly  if  it  freely  permits 
the  importation  of  food,  may  accumulate  a  large  stock  of  capital 
without  any  great  diminution  in  the  rate  of  profits,  or  any  great 
increase  in  the  rent  of  land.  In  the  Chapter  on  W ages,  we  have 
endeavoured  to  show  that  the  money  price  of  commodities  would 
not  be  raised  by  a  rise  of  wages,  either  on  the  supposition  that 
gold,  the  standard  of  money,  was  the  produce  of  this  country,  or 
that  it  was  imported  from  abroad.  But  if  it  were  otherwise,  if 
the  prices  of  commodities  were  permanently  raised  by  high  wages, 
the  proposition  would  not  be  less  true,  which  asserts  that  high 
wages  invariably  affect  the  employers  of  labour,  by  depriving  them 
of  a  portion  of  their  real  profits.  Supposing  the  hatter,  the  hosier, 


ON  PROFITS. 


71 


and  the  shoemaker,  each  paid  10/.  more  wages  in  the  manufacture 
of  a  particular  quantity  of  their  commodities,  and  that  the  price  of 
hats,  stockings,  and  shoes,  rose  by  a  sum  sufficient  to  repay  the 
manufacturer  the  10/. ;  their  situation  would  be  no  better  than  if 
no  such  rise  took  place.  If  the  hosier  sold  his  stockings  for  110/. 
instead  of  100/.,  his  profits  would  be  precisely  the  same  money 
amount  as  before  ;  but  as  he  would  obtain  in  exchange  for  this 
equal  sum,  one-tenth  less  of  hats,  shoes,  and  every  other  commodity, 
and  as  he  could  with  his  former  amount  of  savings  employ  fewer 
labourers  at  the  increased  wages,  and  purchase  fewer  raw  materials 
at  the  increased  prices,  he  would  be  in  no  better  situation  than  if 
his  money  profits  had  been  really  diminished  in  amount,  and  every 
thing  had  remained  at  its  former  price.  Thus,  then,  I  have  endea¬ 
voured  to  show,  first,  that  a  rise  of  wages  would  not  raise  the  price 
of  commodities,  but  would  invariably  lower  profits  ;  and  secondly, 
that  jf' the  prices,  of  all  commodities  could  be  raised,  still  the  effect 
on  profits  would  be  the  same  :  and  that,  in  fact,  the  value  of  tin 
medium  only  jn  which  prices  and  profits  arc  estimated  would  be 
Jowered. 


CHAPTER  VII. 


ON  FOREIGN  TRADE. 

No  extension  of  foreign  trade  will  immediately  increase  tire-amount 
of  value  in  a  country,  although  it  will  very  powerfully  contribute 
to  increase  the  mass  of  commodities,  and  therefore  the  sum  of 
enjoyments.  As  the  value  of  all  foreign  goods  is  measured  by  the 
quantity  of  the  produce  of  our  land  and  labour,  which  is  given  in 
exchange  for  them,  we  should  have  no  greater  value,  if  by  the 
discovery  of  new  markets,  we  obtained  double  the  quantity  of 
foreign  goods  in  exchange  for  a  given  quantity  of  ours.  If  by  the 
purchase  of  English  goods  to  the  amount  of  1000/.,  a  merchant  can 
obtain  a  quantity  of  foreign  goods,  which  he  can  sell  in  the  English 
market  for  1,200/.,  he  will  obtain  20  per  cent,  profit  by  such  an 
employment  of  his  capital ;  but  neither  his  gains,  nor  the  value  of 
the  commodities  imported,  will  be  increased  or  diminished  by  the 
greater  or  smaller  quantity  of  foreign  goods  obtained.  Whether, 
for  example,  he  imports  twenty-five  or  fifty  pipes  of  wine,  his 
interest  can  be  no  way  affected,  if  at  one  time  the  twenty-five  pipes, 
and  at  another  the  fifty  pipes,  equally  sell  for  1,200/.  In  either 
case  his  profit  will  be  limited  to  200/.,  or  20  per  cent,  on  his 
capital ;  and  in  either  case  the  same  value  will  be  imported  into 
England.  If  the  fifty  pipes  sold  for  more  than  1,200/.,  the  profits 
of  this  individual  merchant  would  exceed  the  general  rate  of  profits, 
and  capital  would  naturally  flow'  into  this  advantageous  trade,  till 
the  fall  of  the  price  of  wine  had  brought  every  thing  to  the  former 
level. 

It_Iias4ndeed— been-  contended,  that  the  great  profits  which  are 
sometimes  made  by  particular  merchants  in  foreign  trade,  will 
elevate  the  general  rate  of  profits  in  the  country,  and  that  the 
abstraction  of  capital  from  other  employments,  to  partake  of  the 
new  and  beneficial  foreign  commerce,  will  raise  prices  generally, 
and  thereby  increase  profits.  It  has  been  said,  by  high  authority, 
that  less  capital  being  necessarily  devoted  to  the  growth  of  corn,  to 
the  manufacture  of  cloth,  hats,  shoes,  &c.,  while  the  demand  con¬ 
tinues  the  same,  the  price  of  these  commodities  will  be  so  increased, 
that  the  farmer,  hatter,  clothier,  and  shoemaker,  will  have  an 
increase  of  profits,  as  well  as  the  foreign  merchant.* 

*  See  Adam  Smith,  book  i.  chap.  9. 


ON  FOREIGN  TRADE. 


73 


They  who  hold  tins  argument  agree  with  me,  that  the  profits  of 
different  employments  have  a  tendency  to  conform  to  one  another ; 
to  advance  and  recede  together.  Our  variance  consists  in  this : 
They  contend  that  the  equality  of  profits  will  be  brought  about  by 
the  general  rise  of  profits ;  and  I  am  of  opinion,  that  the  profits  of 
the  fnvonrcd.lrailc,  will  speedily  subside  to  the  general  level. 

ForTfirst,  I  deny  that  less  capital  will  necessarily  be  devoted  to 
the  growth  of  corn,  to  the  manufacture  of  cloth,  hats,  shoes,  &c., 
unless  the  demand  for  these  commodities  be  diminished  ;  and  if  so, 
their  price  will  not  rise.  In  the  purchase  of  foreign  commodities, 
either  the  same,  a  larger,  or  a  less  portion  of  the  produce  of  the 
land  and  labour  of  England  will  be  employed.  If  the  same  portion  be 
so  employed,  then  will  the  same  demand  exist  for  cloth,  shoes,  corn, 
and  hats  as  before,  and  the  same  portion  of  capital  will  be  devoted 
to  their  production.  If,  in  consequence  of  the  price  of  foreign 
commodities  being  cheaper,  a  less  portion  of  the  annual  produce  of 
the  land  and  labour  of  England  is  employed  in  the  purchase  of 
foreign  commodities,  more  will  remain  for  the  purchase  of  other 
\  things.  If  there  be  a  greater  demand  for  hats,  shoes,  corn,  &c.,  than 
before,  which  there  may  be,  the  consumers  of  foreign  commodities 
having  an  additional  portion  of  their  revenue  disposable,  the 
capital  is  also  disposable  with  which  the  greater  value  of  foreign 
commodities  was  before  purchased ;  so  that  with  the  increased  de¬ 
mand  for  corn,  shoes,  &c.,  there  exists  also  the  means  of  procur¬ 
ing  an  increased  supply,  and  therefore  neither  prices  nor  profits 
can  permanently  rise.  If  more  of  the  produce  of  the  land  and 
labour  of  England  be  employed  in  the  purchase  of  foreign  commo¬ 
dities,  less  can  be  employed  in  the  purchase  of  other  things,  and 
therefore  fewer  hats,  shoes,  &c.  will  be  required.  At  the  same  time 
that  capital  is  liberated  from  the  production  of  shoes,  hats,  &c., 
more  must  be  employed  in  manufacturing  those  commodities  with 
which  foreign  commodities  are  purchased ;  and,  consequently,  in  all 
cases  the  demand  for  foreign  and  home  commodities  together,  as  far  ^ 
as  regards  value,  is  limited  by  the  revenue  and  capital  of  the  coun¬ 
try.  .  If'one  increases  the  other  must  diminish.  If  the  quantity  of 
wine,  imported  in  exchange  for  the  same  quantity  of  English  com¬ 
modities,  be  doubled,  the  people  of  England  can  either  consume 
double  the  quantity  of  wine  that  they  did  before,  or  the  same 
quantity  of  wine  and  a  greater  quantity  of  English  commodities. 

If  my  revenue  had  been  1000/.,  with  which  I  purchased  annually 
one  pipe  of  wine  for  100/.,  and  a  certain  quantity  of  English  com¬ 
modities  for  900/. ;  when  wine  fell  to  50/.  per  pipe,  I  might  lay  out 
the  50/.  saved,  cither  in  the  purchase  of  an  additional  pipe  of  wine, 
or  in  the  purchase  of  more  English  commodities.  If  I  bought 
more  wine,  and  every  wine-drinker  did  the  same,  the  foreign  trade 
would  not  be  in  the  least  disturbed  ;  the  same  quantity  of  English 
commodities  would  be  exported  in  exchange  for  wine,  and  we  should 
receive  double  the  quantity,  though  not  double  the  value  of  wine. 


74 


ON  FOREIGN  TRADE. 


But  if  I,  and  others,  contented  ourselves  with  the  same  quantity  of 
wine  as  before,  fewer  English  commodities  would  be  exported,  and 
the  wine-drinkers  might  either  consume  the  commodities  which 
were  before  exported,  or  any  others  for  which  they  had  an  inclina¬ 
tion.  The  capital  required  for  their  production  would  be  supplied 
by  the  capital  liberated  from  the  foreign  trade, 
i,  There  are  two  ways  in  which  capital  may  be  accumulated  ;  it 

Jnay  be  saved  either  in  consequence  of  increased  revenue,  or  of 
liminished  consumption.  If  my  profits  are  raised  from  1000/.  to 
1,200/.,  while  my  expenditure  continues  the  same,  I  accumulate  an¬ 
nually  200/.  more  than  I  did  before.  If  I  save  200/.  out  of  my 
expenditure,  while  my  profits  continue  the  same,  the  same  effect 
will  be  produced ;  200/.  per  annum  will  be  added  to  my  capital. 
The  merchant  who  imported  wine  after  profits  had  been  raised  from 
20  per  cent,  to  40  per  cent.,  instead  of  purchasing  his  English  goods 
for  1000/.,  must  purchase  them  for  857/.  2s.  10d.,  still  selling  the 
wine  which  he  imports  in  return  for  those  goods  for  1,200/. ;  or,  if 
he  continued  to  purchase  his  English  goods  for  1000/.,  must  raise 
the  price  of  his  wine  to  1,400/. ;  he  would  thus  obtain  40  instead  of 
20  per  cent,  profit  on  his  capital ;  but  if,  in  consequence  of  the 
cheapness  of  all  the  commodities  on  which  his  revenue  was  ex¬ 
pended,  he  and  all  other  consumers  could  save  the  value  of  200/. 
out  of  every  1000/.  they  before  expended,  they  would  more  effec¬ 
tually  add  to  the  real  wealth  of  the  country ;  in  one  case,  the  savings 
would  be  made  in  consequence  of  an  increase  of  revenue,  in  the 
other,  in  consequence  of  diminished  expenditure. 

If,  by  the  introduction  of  machinery,  the  generality  of  the  com¬ 
modities  on  which  revenue  was  expended  fell  20  per  cent,  in  value, 
I  should  be  enabled  to  save  as  effectually  as  if  my  revenue  had 
been  raised  20  per  cent. ;  but  in  one  case  the  rate  of  profits  is 
stationary,  in  the  other  it  is  raised  20  per  cent. — If,  by  the  intro- 

(duction  of  cheap  foreign  goods,  I  can  save  20  per  cent,  from  my 
expenditure,  the  effect  will  be  precisely  the  same  as  if  machinery 
had  lowered  the  expense  of  their  production,  but  profits  would  not 
be  raised. 

It  is  not,  therefore,  in  consequence  of  the  extension  of  the  market 
that  the  rate  of  profit  is  raised,  although  such  extension  may  be 
equally  efficacious  in  increasing  the  mass  of  commodities,  and  may 
thereby  enable  us  to  augment  the  funds  destined  for  the  mainte¬ 
nance  of  labour,  and  the  materials  on  which  labour  maybe  employed, 
►-It  is  quite  as  important  to  the  happiness  of  mankind,  that  our  en¬ 
joyments  should  be  increased  by  the  better  distribution  of  labour,, 
by  each  country  producing  those  commodities  for  which  by  its 
situation,  its  climate,  and  its  other  natural  or  artificial  advantages, 
it  is  adapted,  and  by  their  exchanging  them  for  the  cpmmpditaes  of 
other  countries,  as  that  they  should  be  augmented  by  a  rise  in  the 
srate  of  profits. 

It  has  been  my  endeavour  to  show  throughout  this  work,  that 


ON  FOREIGN  TRADE. 


75 


the  rate  of  profits  can  never  be  increased  but  by  a  fall  in  wages, 
and  that  there  can  be  no  permanent  fall  of  wages  but  in  consequence 
of  a  fill  of  the  necessaries  on  which  wages  are  expended.  If,  there¬ 
fore.  by  the  extension  of  foreign  trade,  or  by  improvements  in 
machinery,  the  food  and  necessaries  of  the  labourer  can  be  brought 
to'Tnarket,  at  a  reduced  price,  profits  will  rise.  If,  instead  of  grow- 
JngTnir  own  corn,  or  manufacturing  the  clothing  and  other  neces¬ 
saries  of  the  labourer,  we  discover  a  new  market  from  which  we 

J>an  supplv  ourselves  with  these  commodities  at  a  cheaper  price, 
yages ".will  fall  and  profits  rise  ;  but  if  the  commodities  obtained  at 
i  cheaper  rate,  by  the  extension  of  foreign  commerce,  or  by  the 
improvement  of  machinery,  be  exclusively  the  commodities  con 
j  sumed  by  the  rich,  no  alteration  will  take  place  in  the  rate  of  profits. 


velvets, 
per  cent., 


j  The  rate  of  wages  would  not  be  affected,  although  wine, 
silks,  and  other  expensive  commodities  should  fall  50 
and  consequently  profits  would  continue  unaltered. 

Foreign  trade,  then,  though  highly  beneficial  to  a  country,  as  it 
increases  the  amount  and  variety  of  the  objects  on  which  revenue 
may  be  expended,  and  affords,  by  the  abundance  and  cheapness 
of  commodities,  incentives  to  saving,  and  to  the  accumulation  of 
•capital,  has  no  tendency  to  raise  the  profits  of  stock,  unless  the 
commodifies  imported'  be~oT  that  description  on  which  the  wages 
of  kibqufjTrrrrxjTgfi d ed . 

The  remarks  which  huve  been  made  respecting  foreign  trade, 
apply  equally  to  home  trade.  The  rate  of  profits  is  never  increased 
by  a  better  distribution  of  labour,  by  the  invention  of  machinery, 
by  the  establishment  of  roads  and  canals,  or  by  any  means  of 
abridging  labour  either  in  the  manufacture  or  in  the  conveyance 
goods.  These  are  causes  which  operate  on  price,  and  never  fail 
be  highly  beneficial  to  consumers ;  since  they  enable  them,  wTtly 
the  same  labour,  or  with  the  value  of  the  produce  of  fhe-samc 
labour,  to  obtain  in  exchange  a  greater  quantity  of  the  commodity 
to  which  the  improvement  is  applied  ;  but  they  have  no  effect, 
whatever  on  profit.  On  the  other  hand,  even'  diminution  in  the 
wages  of  labour  raises  profits,  but  produces  no  effect  on  the  price, 
of  commodities.  One  is  advantageous  to  all  classes,  for  all  classes 
are  consumers  ;  the  other  is  beneficial  only  to  producers  ;  they 
gain  more,  but  every  thing  remains  at  its  former  price.  In  the 
first  case  they  get  the  same  as  before  ;  but  every  thing  on  which 
their  gains  are  expended,  is  diminished  in  exchangeable  value. 

The  same  rule  which  regulates  the  relative  value  of  commodities 
in  one  country,  does  not  regulate  the  relative  value  of  the  commo¬ 
dities  exchanged  between  two  or  more  countries. 

Under  a  system  of  perfectly  free  commerce,  each  country  natu 
rally  devotes  its.  capital  and  labour  to  such  employments  as  are.N<^- 
most  beneficial  to  each.  This  pursuit  of  individual  advantage  is 
admirajbly-eonnccted  with  the  universal  good  of  the  whole.  By 
stimulating  industry,  by  rewarding  ingenuity,  and  by  using  most 


|  of : 
I to 

si  flip 


J 


76 


ON  FOREIGN  TRADE. 


efficaciously  the  peculiar  powers  bestowed  by  nature,  it  distributes 
labour  most  effectively  and  most  economically  :  while,  by  increas¬ 
ing  the  general  mass  of  productions,  it  diffuses  general  benefit,  and 
binds  together,  by  one  common  tie  of  interest  and  intercourse,  the 
universal  society  of  nations  throughout  the  civilized  world.  It  is 
this  principle  which  determines  that  wine  shall  be  made  in  France 
and  Portugal,  that  corn  shall  be  grown  in  America  and  Poland, 
and  that  hardware  and  other  goods  shall  be  manufactured  in 
\  England. 

In  one  and  the  same  country,  profits  are,  generally  speaking, 
always  on  the  same  level ;  or  differ  only  as  the  employment  of 
capital  may  be  more  or  less  secure  and  agreeable.  It  is  not  so 
between  different  countries.  If  the  profits  of  capital  employed  in 
Yorkshire,  should  exceed  those  of  capital  employed  in  London, 
capital  would  speedily  move  from  London  to  Yorkshire,  and  an 
equality  of  profits  would  be  effected ;  but  if  in  consequence  of  the 
|  diminished  rate  of  production  in  the  lands  of  England,  from  the 
increase  of  capital  and  population,  wages  should  rise,  and  profits 
\  !  fall,  it  would  not  follow  that  capital  and  population  would  neces- 
y  sarily  move  from  England  to  Llolland,  or  Spain,  or  Russia,  where 
profits  might  be  higher. 

If  Portugal  had  no  commercial  connexion  with  other  countries, 
instead  of  employing  a  great  part  of  her  capital  and  industry  in 
the  production  of  wines,  with  which  she  purchases  for  her  own  use 
the  cloth  and  hardware  of  other  countries,  she  would  be  obliged  to 
devote  a  part  of  that  capital  to  the  manufacture  of  those  commodi¬ 
ties,  which  she  would  thus  obtain  probably  inferior  in  quality  as 
well  as  quantity. 

,  The  quantity  of  wine  which  she  shall  give  in  exchange  for  the 
cloth  of  England,  is  not  determined  by  the  respective  quantities  of 
labour  devoted  to  the  production  of  each,  as  it  would  be,  if  both 
-  commodities  were  manufactured  in  England,  or  both  in  Portugal. 

England  may  be  so  circumstanced,  that  to  produce  the  cloth 
may  require  the  labour  of  100  men  for  one  year;  and  if  she 
attempted  to  make  the  wine,  it  might  require  the  labour  of  120 
men  for  the  same  time.  England  would  therefore  find  it  her 
interest  to  import  wine,  and  to  purchase  it  by  the  exportation  of 
cloth. 

To  produce  the  wine  in  Portugal,  might  require  only  the  labour 
of  80  men  for  one  year,  and  to  produce  the  cloth  in  the  same 
country,  might  require  the  labour  of  90  men  for  the  same  time.  It 
[would  therefore  be  advantageous  for  her  to  export  wine  in  exchange 
(for  cloth.  This  exchange  might  even  take  place,  notwithstanding 
that  the  commodity  imported  by  Portugal  could  be  produced  there 
with  less  labour  than  in  England.  'Though  she  could  make  the 
cloth  with  the  labour  of  90  men,  she  would  import  it  from  a 
■Y  country  where  it,  required  the  labour  of  100  men  to  produce  it, 
because  it  would  be  advantageous  to  her  rather  to  employ  her 


OX  FOREIGN  TRADE. 


77 


capital  in  the  production  of  wine,  for  which  she  would  obtain  more 
cloth  from  England,  than  she  could  produce  by  diverting  a  portion 
of  her  capital  from  the  cultivation  of  vines  to  the  manufacture  of 
cloth. 

Thus  England  would  give  the  produce  of  the  labour  of  100  men, 
for  the  produce  of  the  labour  of  80.  Such  an  exchange  could  not 
take  place  between  the  individuals  of  the  same  country.  The 
labour  of  100  Englishmen  cannot  be  given  for  that  of  80  English¬ 
men,  but  the  produce  of  the  labour  of  100  Englishmen  may  be 
given  for  the  produce  of  the  labour  of  80  Portuguese,  GO  Russians, 
or  120  East  Indians.  The  difference  in  this  respect,  between  a 
single  country  and  many,  is  easily  accounted  for,  by  considering 
the  difficulty  with  which  capital  moves  from  one  country  to 
another,  to  seek  a  more  profitable  employment,  and  the  activity 
with  which  it  invariably  passes  from  one  province  to  another  in  the 
same  country.* 

It  ATOithb  undoubtedly  be  advantaggmis  to  the  capitalists  of 
England,  and  tn.tha  consumers  in  both  countries,  that  under  such 
circumstances,  the  wine  and  the  cloth  should  both  be  made  in 
•  Portugal,  and  therefore  that  the  capital  and  labour  of  England 
■employed  in  makiitg'cloth,  should  be  removed  to  Portugal  for  that 
purjmse.  In  that  case,  the  relative  value  of  these  commodities 
would  be  regulated  by  the  same  principle,  as  if  one  were  the  pro¬ 
duce  of  Yorkshire,  and  the  other  of  London :  and  in  every  other 
case,  if  capital  freely  flowed  towards  those  countries  where  it  could 
be  most  profitably  employed,  there  could  be  no  difference  in  the 
vafe  oTpmfit.  and  no  other  difference  in  the  real  or  labour  price  of 
commodities,  than  the  additional  quantity  of  labour  required  to 
convey  them  to  the  various  markets  where  they  were  to  be  sold.  , 

Experience,  however,  shows,  that  the  fancied  or  real  insecurity 
of  capital,  when  not  under  the  immediate  control  of  its  ownerl 
together  with  the  natural  disinclination  which  every  man  has  to 
quit  the  country  of  his  birth  and  connexions,  and  intrust  himself, l 
Mwith  all  his  habits  fixed,  to  a  strange  government  and  new  lawsJ  — 
check  the  emigration  of  capital.  These  feelings,  whieh-L-shouhl  be| 


4- 


sowaL-vn  sceywcaK&ned,  induce  most  men  of  property  to  be  satisfied' 
with  a  low  rate  of  profits  in  their  own  country,  rather  than  seek  a 


more  advantageous  employment  for  their  wealth  in  foreign  nations. 

Gold  and  silver  having  been  chosen  for  the  general  medium  of 
circulation,  they  are,  by  the  competition  of  commerce,  distributed 


*  It  will  appear,  then,  that  a  country  possessing  very  considerable  advantages  in  '}  ClipT' 
machinery  and  skill,  and  which  may  therefore  be  enabled  to  manufacture  commodi-  > 
ties  with  much  less  labour  than  her  neighbours,  may,  in  return  for  such  commodities.  '  \0-£!3XsflJW8 
import  a  portion  of  the  corn  required  for  its  consumption,  even  if  its  land  were  more  \J  O 
fertile,  and  corn  could  be  grown  with  less  labour  than  in  the  country  from  which  it 
was  imported.  Two  men  can  both  make  shoes  and  hats,  and  one  is  superior  to  the 
other  in  both  employments ;  but  in  making  hats,  he  can  only  exceed  his  competitor 
by  one-fifth  or  20  per  cent.,  and  in  making  shoes  he  can  excel  him  by  one-third  or  33 
per  cent.; — will  it  not  he  for  the  interest  of  both,  that  the  superior  man  should  employ 
himself  exclusively  in  making  shoes,  and  the  inferior  man  in  making  hats  ? 


78 


ON  FOREIGN  TRADE. 


in  such  proportions  amongst  the  different  countries  of  the  world,  as 
to  accommodate  themselves  to  the  natural  traffic  which  would  take 
place  if  no  sueh...mctal§ .existed, luRTThc-taide  between  countries 
were  purely  a  trade  of  barter. 

Thus,  cloth  cannot  be  imported  into  Portugal,  unless  it  sell  there 
for  more  gold  than  it  cost  in  the  country  from  which  it  was  im¬ 
ported  ;  and  wine  cannot  be  imported  into  England,  unless  it  will 
sell  for  more  there  than  it  cost  in  Portugal.  If  the  trade  were 
purely  a  trade  of  barter,  it  could  only  continue  whilst  England 
could  make  cloth  so  cheap  as  to  obtain  a  greater  quantity  of  wine 
with  a  given  quantity  of  labour,  by  manufacturing  cloth  than  by 
growing  vines  ;  and  also  whilst  the  industry  of  Portugal  were 
attended  by  the  reverse  effects.  Now  suppose  England  to  discover 
a  process  for  making  wine,  so  that  it  should  become  her  interest 
rather  to  grow  it  than  import  it ;  she  would  naturally  divert  a  por¬ 
tion  of  her  capital  from  the  foreign  trade  to  the  home  trade ;  she 
would  cease  to  manufacture  cloth  for  exportation,  and  would  grow 
wine  for  herself.  The  money  price  of  these  commodities  would  be 
regulated  accordingly  ;  wine  would  fall  here  while  cloth  continued 
at  its  former  price,  and  in  Portugal  no  alteration  would  take  place 
in  the  price  of  either  commodity.  Cloth  would  continue  for  some 
time  to  be  exported  from  this  country,  because  its  price  would  con¬ 
tinue  to  be  higher  in  Portugal  than  here ;  but  money  instead  of 
I  wine  would  be  given  in  exchange  for  it,  till  the  accumulation  of 
.  money  here,  and  its  diminution  abroad,  should  so  operate  on  the 
relative  value  of  cloth  in  the  two  countries,  that  it  would  cease  to 
r  be  profitable  to  export  it.  If  the  improvement  in  making  wine  were 
of  a  very  important  description,  it  might  become  profitable  for  the 
■  two  countries  to  exchange  employments  ;  for  England  to  make  all 
the  wine,  and  Portugal  all  the  cloth  consumed  by  them  ;  but  this 
could  be  effected  only  by  a  new  distribution  of  the  precious  metals, 
which  should  raise  the  price  of  cloth  in  England,  and  lower  it  in 
Portugal.  The  relative  price  of  wine  would  fall  in  England  in 
consequence  of  the  real  advantage  from  the  improvement  of  its 
manufacture ;  that  is  to  say,  its  natural  price  would  fall ;  the  rela¬ 
tive  price  of  cloth  would  rise  there  from  the  accumulation  of  money. 

Thus,,  suppose  before  the  improvement  in  making  wine  in  Eng¬ 
land,  the  price  of  wine  here  were  50?.  per  pipe,  and  the  price  of  a 
certain  quantity  of  cloth  were  45?.,  whilst  in  Portugal  the  price  of 
the  same  quantity  of  wine  was  45?.,  and  that  of  the  same  quantity 
of  cloth  50?. ;  wine  would  be  exported  from  Portugal  with  a  profit 
of  5?.,  and  cloth  from  England  with  a  profit  of  the  same  amount. 

Suppose  that,  after  the  improvement,  wine  falls  to  45?.  in  Eng¬ 
land,  the  cloth  continuing  at  the  same  price.  Every  transaction  in 
-  commerce  is  an  independent  transaction.  Whilst  a  merchant  can 
buy  cloth  in  England  for  45?.,  and  sell  it  with  the  usual  profit  in 
Portugal,  he  will  continue  to  export  it  from  England.  Ilis  business 
is  simply  to  purchase  English  cloth,  and  to  pay  for  it  by  a  bill  of 


OX  FOREIGN  TRADE. 


79 


exchange,  whit  \  he  purchases  with  Portuguese  money.  It  is  to 
him  of  no  importance  what  becomes  of  this  money :  he  has  dis¬ 
charged  his  debt  by  the  remittance  of  the  bill.  Ilis  transaction  is 
undoubtedly  regulated  by  the  terms  on  which  he  can  obtain  this 
bill,  but  they  are  known  to  him  at  the  time  ;  and  the  causes  which 
may  influence  the  market  price  of  bills,  or  the  rate  of  exchange,  is 
no  consideration  of  his. 

If  the  markets  be  favourable  for  the  exportation  of  wine  from 
,  Portugal  to  England,  the  exporter  of  the  wine  will  be  a  seller  of  a 
/  bill,  which  will  be  purchased  either  by  the  importer  of  the  cloth,  or 
1  by  the  person  who  sold  him  his  bill ;  and  thus,  without  the  necessity 
\  of  money  passing  from  either  country,  the  exporters  in  each  country 
'Will  be  paid  for  their  goods.'/  Without  having  any  direct  transac¬ 
tion  with  each  other,  the  money  paid  in  Portugal  by  the  importer 
of  cloth  will  be  paid  to  the  Portuguese  exporter  of  wine  ;  and 
in  England  by  the  negotiation  of  the  same  bill,  the  exporter  of 
the  cloth  will  be  authorised  to  receive  its  value  from  the  importer 
of  wine. 

But  if  the  prices  of  wine  were  such  that  no  wine  could  be  ex¬ 
ported  to  England,  the  importer  of  cloth  would  equally  purchase  a 
1  bill ;  but  the  price  of  that  bill  would  be  higher,  from  the  knowledge 
which  the  seller  of  it  would  possess,  tlutt  there  was  no  counter  bill 
in  the  market  by  which  he  could  ultimately  settle  the  transactions 
between  the  two  countries  ;  he  might  know  that  the  gold  or  silver 
money  which  he  received  in  exchange  for  his  bill,  must  be  actually 
exported  to  his  correspondent  in  England,  to  enable  him  to  pay 
the  demand  which  he  had  authorised  to  be  made  upon  him,  and  he 
might  therefore  charge  in  the  price  of  his  bill  all  the  expenses  to 
be  incurred,  together  with  his  fair  and  usual  profit. 

If  then  this  premium  for  a  bill  on  England  should  be  equal  to 
the  profit  on  importing  cloth,  the  importation  would  of  course 
cease ;  but  if  the  premium  on  the  bill  were  only  2  per  cent.,  if  to 
be  enabled  to  pay  a  debt  in  England  of  100/.,  102/.  should  be  paid 
in  Portugal, "whilst  cloth  which  cost  45/.  would  sell  for  50/.,  cloth 
would  be  imported,  bills  would  be  bought,  and  money  would  be 
exported,  till  the  diminution  of  money  in  Portugal,  and  its  accu¬ 
mulation  in  England,  had  produced  such  a  state  of  prices  as  would 
make  it  no  longer  profitable  to  continue  these  transactions. 

But  the  diminution  of  money  in  one  country,  and  its  increase  in 
another,  do  not  operate  on  the  price  of  one  commodity  only,  but 
on  the  prices  of  all,  and  therefore  the  price  of  wine  and  cloth  will 
be  both  raised  in  England,  and  both  lowered  in  Portugal.  The 
price  of  cloth,  from  being  45/.  in  one  country  and  50/.  in  the  other, 
would  probably  fall  to  49/.  or  48/.  in  Portugal,  and  rise  to  46/.  or 
4?/.  in  England,  and  not  afford  a  sufficient  profit  after  paying  a 
premium  for  a  bill  to  induce  any  merchant  to  import  that  com¬ 
modity. 

It  is  thus  that  the  money  of  each  country  is  apportioned  to  it  in 


80 


ON  FOREIGN  TRADE. 


such  quantities  only  as  may  he  necessary  to  regul  te  a  profitable 
trade  of  barter.  England  exported  cloth  in  exchange  for  wine, 

-  l  because,  by  so  doing,  her  industry  was  rendered  more  productive  I 
I  I  to  her ;  she  had  more  cloth  and  wine  than  if  she  had  manufactured 
both  for  herself ;  and  Portugal  imported  cloth  and  exported  wine, 
because  the  industry  of  Portugal  could  be  more  beneficially 
employed  for  both  countries  in  producing  wine.  Let  there  be 
more  difficulty  in  England  in  producing  cloth,  or  in  Portugal  in 
producing  wine,  or  let  there  be  more  facility  in  England  in  pro¬ 
ducing  wine,  or  in  Portugal  in  producing  cloth,  and  the  trade  must 
immediately  cease. 

No  change  whatever  takes  place  in  the  circumstances  of  Por¬ 
tugal  ;  but  England  finds  that  she  can  employ  her  labour  more 
productively  in  the  manufacture  of  wine,  and  instantly  the  trade 
of  barter  between  the  two  countries  changes.  Not  only  is  the 
exportation  of  wine  from  Portugal  stopped,  but  a  new  distribution 
of  the  precious  metals  takes  place,  and  her  importation  of  cloth  is 
also  prevented. 

Both  countries  would  probably  find  it  their  interest  to  make 
their  own  wine  and  their  own  cloth;  but  this  singular  result  would 
take  place  :  in  England,  though  wine  would  be  cheaper,  cloth 
would  be  elevated  in  price,  more  would  be  paid  for  it  by  the  con¬ 
sumer  ;  while  in  Portugal  the  consumers,  both  of  cloth  and  of 
wine,  would  be  able  to  purchase  those  commodities  cheaper.  In 
the  country  where  the  improvement  was  made,  prices  would  be 
enhanced  ;  in  that  where  no  change  had  taken  place,  but  where 
they  had  been  deprived  of  a  profitable  branch  of  foreign  trade, 
prices  would  fall. 

This,  however,  is  only  a  seeming  advantage  to  Portugal,  for  the 
quantity  of  cloth  and  wine  together  produced  in  that  country 
would  be  diminished,  while  the  quantity  produced  in  England 
would  be  increased.  Money  would  in  some  degree  have  changed 
its  value  in  the  two  countries  ;  it  would  be  lowered  in  England 
and  raised  in  Portugal.  Estimated  in  money,  the  whole  revenue 
of  Portugal  would  be  diminished ;  estimated  in  the  same  medium, 
the  whole  revenue  of  England  would  be  increased. 


t  Thus,  then,  it  appears  that  the  improvement  of  a  manufacture  in 
kany  country  tends  to  alter  the  distribution  of  the  precious  metals 
amongst  the  nations  of  the  world :  it  tends  to  increase  the  quantity 
oPcominodities,  at  the  same  time  that  it  raises  general  prices  in  the 
country  where  the  improvement  takes  place. 

To  simplify  the  question,  I  have  been  supposing  the  trade 
between  two  countries  to  be  confined  to  twTo  commodities — to 
wine  and  cloth ;  but  it  is  well  known  that  many  and  various 
articles  enter  into  the  list  of  exports  and  imports.  By  the  abstrac¬ 
tion  of  money  from  one  country,  and  the  accumulation  of  it  in 
another,  all  commodities  arc  affected  in  price,  and  consequently 
encouragement  is  given  to  the  exportation  of  many  more  commo 


ON  FOREIGN  TRADE. 


81 


dities  besides  money,  which  will  therefore  prevent  so  great  an 
effect  from  taking  place  on  the  value  of  money  in  the  two  countries 
as  might  otherwise  be  expected. 

Beside  the  improvements  in  arts  and  machinery,  there  are 
various  other  causes  which  are  constantly  operating  on  the  natural 
course  of  trade,  and  which  interfere  with  the  equilibria m,  and  tlnv^'" 
relative  value  of  money.  Bounties  on  exportation  or  importation,/ 
new  taxes,  on  commodities,  sShTHTTncs  by  their  direct,  and  at  other 
times  by  their  indirect  operation,  disturb  the  natural  trade  of 
barter,  and  produce  a  consequent  necessity  of  importing  or  export¬ 
ing  money,  in  order  that  prices  may  be  accommodated  to  the 
natural  course  of  commerce ;  and  this  effect  is  produced  not  only 
in  the  country  where  the  disturbing  cause  takes  place,  but,  in  a 
greater  or  less  degree,  in  every  country  of  the  commercial  world. 

This  will  in  some  measure  account  for  the  different  value  of 
money  in  different  countries;  it  will  explain  to  us  why  the  prices 
of  home  commodities,  and  those  of  great  bulk,  though  of  compara¬ 
tively  small  value,  are,  independently  of  other  causes,  higher  in 
those  countries  where  manufactures  flourish.  Of  two  countries 
having  precisely  the  same  population,  and  the  same  quantity  of 
land  of  equal  fertility  in  cultivation,  with  the  same  knowledge  too 
of  agriculture,  the  prices  of  raw  produce  will  be  highest  in  that 
where  the  greater  skill,  and  the  better  machinery  is  used  in  the 
manufacture  of  exportable  commodities.  The  rate  of  profits  will 
probably  differ  but  little;  for  wages,  or  the  real  reward  of  the 
labourer,  may  be  the  same  in  both ;  but  those  wages,  as  well  as 
raw  produce,  will  be  rated  higher  in  money  in  that  country,  into 
which,  from  the  advantages  attending  their  skill  and  machinery, 
an  abundance  of  money  is  imported  in  exchange  for  their  goods. 

Of  these  two  countries,  if  one  had  the  advantage  in  the  manu¬ 
facture  of  goods  of  one  quality,  and  the  other  in  the  manufacture 
of  goods  of  another  quality,  there  would  be  no  decided  influx  of  the 
precious  metals  into  either  ;  but  if  the  advantage  very  heavily  pre¬ 
ponderated  in  favour  of  either,  that  effect  would  be  inevitable. 

In  the  former  part  of  this  work,  we  have  assumed,  for  the  purpose 
of  argument,  that  money  always  continued  of  the  same  value  ;  we 
are  now  endeavouring  to  show  that,  besides  the  ordinary  variations 
in  the  value  of  money,  and  those  which  are  common  to  the  whole 
commercial  world,  there  are  also  partial  variations  to  which  money 
is  subject  in  particular  countries  ;  and  to  the  fact,  that  the  value  of 
/money  is  never  the  same  in  any  two  countries,  depending,  as  it  do  ‘s 
on' relative  taxation,  on  manufacturing  skill,  on  the  advantages  of" 
climate,  natural  productions,  and  many  other  causes. 

Although,  however,  money  is  subject  to  such  perpetual  variations, 
and  consequently  the  prices  of  the  commodities  which  are  common 
to  most  countries,  arc  also  subject  to  considerable  difference,  yet  no 
effect  will  be  produced  on  the  rate  of  profits,  either  from  the  influx 
or  etfluxlff  money.  Capital  will  not  be  increased,  because  the  cir- 


82 


ON  FOREIGN  TRADE 


dilating-  medium  is  augmented.  If  the  rent  paid  by  the  farmer  to 
his  landlord,  and  the  wages  to  his  labourers,  be  20  per  cent,  higher 
in  one  country  than  another,  and  if  at  the  same  time  the  nominal 
value  of  the  farmer’s  capital  be  20  per  cent,  more,  he  will  receive 
precisely  the  same  rate  of  profits,  although  he  should  sell  his  raw 
produce  20  per  cent,  higher. 

Profits,  it  cannot  be  too  often  repeated,  depend  on  wages ;  not 
on  nominal,  but  real  wages ;  not  on  the  number  of  pounds  that  may 
be  annually  paid  to  the  labourer,  but  on  the  number  of  days’  work 
necessary  to  obtain  those  pounds.  Wages  may  therefore  be  pre¬ 
cisely  the  same  in  two  countries ;  they  may  bear,  too,  the  same 
proportion  to  rent,  and  to  the  whole  produce  obtained  from  the 
land,  although  in  one  of  those  countries  the  labourer  should  receive 
ten  shillings  per  week,  and  in  the  other  twelve. 

In  the  early  states  of  society,  when  manufactures  have  made  little 
progress,  and  the  -produce  of  all  countries  is  nearly  similar,  consist¬ 
ing-  of  the  bulky  and  most  useful  commodities,  the  value  of  money 
in  different  countries  will  be  chiefly  regulated  by  their  distance 
from  the  mines  which  supply  the  precious  metals ;  but  as  the  arts 
and  improvements  of  society  advance,  and  different  nations  excel' 
in  particular  manufactures,  although  distance  will  still  enter  into 
the  calculation,  the  value  of  the  precious  metals  will  be-  chiefly 
regulated  by  the  superiority  of  those  manufactures. 

Suppose  all  nations  to  produce  corn,  cattle,  and  coarse  clothing 
only,  and  that  it  was  by  the  exportation  of  such  commodities  that 
gold  could  be  obtained  from  the  countries  which  produced  them, 
or  from  those  who  held  them  in  subjection ;  gold  would  nafurally 
be  of  greater  exchangeable  value  in  Poland  than  in  England,  on 
account  of  the  greater  expense  of  sending  such  a  bulky  commodity 
as  corn  the  more  distant  voyage,  and  also  the  greater  expense 
attending  the  conveying  of  gold  to  Poland. 

This  difference  in  the  value  of  gold,  or,  which  is  the  same  thing, 
this  difference  in  the  price  of  corn  in  the  two  countries,  would  exist, 
although  the  facilities  of  producing  corn  in  England  should  far 
exceed  those  of  Poland,  from  the  greater  fertility  of  the  land,  and 
the  superiority  in  the  skill  and  implements  of  the  labourer. 

If,  however,  Poland  should  be  the  first  to  improve  her  manufac¬ 
tures,  if  she  should  succeed  in  making  a  commodity  which  was 
generally  desirable,  including  great  value  in  little  bulk,  or  if  she 
should  be  exclusively  blessed  with  some  natural  production,  gene¬ 
rally  desirable,  and  not  possessed  by  other  countries,  she  would 
obtain  an  additional  quantity  of  gold  in  exchange  for  this  commo¬ 
dity,  which  would  operate  on  the  price  of  her  corn,  cattle,  and 
coarse  clothing.  The  disadvantage  of  distance  would  probably  be 
more  than  compensated  by  the  advantage  of  having  an  exportable 
commodity  of  great  value,  and  money  would  be  permanently  of 
lower  value  in  Poland  than  in  England.  If,  on  the  contrary,  the 
advantage  of  skill  and  machinery  were  possessed  by  England, 


OX  FOREIGN  TRADE. 


83 


another  reason  would  be  added  to  that  which  before  existed,  why 
gold  should  be  less  valuable  in  England  than  in  Poland,  and  why 
corn,  cattle,  and  clothing,  should  be  at  a  higher  price  in  the  former 
country. 

These  I  believe  to  be  the  only  two  causes  which  regulate  the 
comparative  value  of  money  in  the  different  countries  of  the  world  ; 
for  although  taxation  occasions  a  disturbance  of  the  equilibrium  of 
money,  it  does  so  by  depriving  the  country  in  which  it  is  imposed 
of  some  of  the  advantages  attending  skill,  industry,  and  climate. 

It  has  been  my  endeavour  carefully  to  distinguish  between  a  low 
value  of  money,  and  a  high  value  of  corn,  or  any  other  commodity 
with  which  money  may  be  compared.  These  have  been  generally 
considered  as  meaning  the  same  thing ;  but  it  is  evident,  that  when  , 
corn  rises  from  five  to  ten  shillings  a  bushel,  it  may  be  owing  eitheivy 
to  a  fall  in  the  value  of  money,  or  to  a  rise  in  the  value  of  corn. 
Thus  we  have  seen,  that  from  the  necessity  of  having  recourse  suc¬ 
cessively  to  land  of  a  worse  and  worse  quality,  in  order  to  feed  an 
increasing  population,  com  must  rise  in  relative  value  to  other 
things.  If  therefore  money  continue  permanently  of  the  same 
\  \value,  corn  will  exchange  for  more  of  such  money,  that  is  to  say,  it 
will  rise  in  price.  The  same  rise  in  the  price  of  corn  will  be  pro¬ 
duced  by  such  improvement  of  machinery  in  manufactures,  as  shall 
enable  us  to  manufacture  commodities  with  peculiar  advantages  : 
for  the  influx  of  money  will  be  the  consequence  ;  it  will  fall  in 
value,  and  therefore  exchange  for  less  corn.  But  the  effects  result¬ 
ing  from  a  high  price  of  corn  when  produced  by  the  rise  in  the 
value  of  corn,  and  when  caused  by  a  fall  in  the  value  of  money, 
are  totally  different.  In  both  cases  the  money  price  of  wages  will 
rise,  but  if  it  be  in  consequence  of  the  fall  in  the  value  of  money,  ■¥ 
not  only  wages  and  corn,  but  all  other  commodities  will  rise.  If 
the  manufacturer  has  more  to  pay  for  wages,  he  will  receive  more 
for  his  manufactured  goods,  and  the  rate  of  profits  will  remain 
i  unaffected.  But  when  the  rise  in  the  price  of  corn  is  the  effect 
of  the  difficulty  of  production,  profits  willrall ;  for  the  manufacturer 
will  be  obliged  to  pay  more  wages,  and  will  not  be  enabled  to  remu¬ 
nerate  himself  by  raising  the  price  of  his  manufactured  commodity. 

Any  improvement  in  the  facility  of  working  the  mines,  by  which 
the  precious  metals  may  be  produced  with  a  less  quantity  of  labour, 
will  sink  the  value  of  money  generally.  It  will  then  exchange  for 
fewer  commodities  in  all  countries  ;  but  when  any  particular  country 
excels  in  manufactures,  so  as  to  occasion  an  influx  of  money  towards 
it,  the  value  of  money  will  be  lower,  and  the  prices  of  corn  and 
labour  will  be  relatively  higher  in  that  country  than  in  any  other. 

This  higher  value  of  money  will  not  be  indicated  by  the  ex¬ 
change  ;  bills  may  continue  to  be  negotiated  at  par,  although  the 
prices  of  corn  and  labour  should  be  10,  20,  or  30  per  cent,  higher 
in  one  country  than  another.  Under  the  circumstances  supposed, 
such  a  difference  of  prices  is  tin;  natural  order  of  things,  and  the 


V\ 


84 


ON  FOREIGN  TRADE. 


exchange  can  only  be  at  par,  when  a  sufficient  quantity  of  money 
is  introduced  into  the  country  excelling  in  manufactures,  so  as  to 
raise  the  price  of  its  corn  and  labour.  If  foreign  countries  should 
prohibit  the  exportation  of  money,  and  could  successfully  enforce 
obedience  to  such  a  law,  they  might  indeed  prevent  the  rise  in  the 
prices  of  the  corn  and  labour  of  the  manufacturing  country for 
such  rise  can  only  take  place  after  the  influx  of  the  precious  metals, 
supposing  paper  money  not  to  be  used  ;  but  they  could  not  prevent 
the  exchange  from  being  very  unfavourable  to  them.  If  England 
were  the  manufacturing  country,  and  it  were  possible  to  prevent 
the  importation  of  money,  the  exchange  with  France,  Holland,  and 
Spain,  might  be  5,  10,  or  20  per  cent,  against  those  countries. 

Whenever  the  current  of  money  is  forcibly  stopped,  and  when 
money  is  prevented  from  settling  at  its  just  lcvcIT  thergmrwsip 
limits  to  the  possible  variations  of  the  exchange.  T1kt  effects  are 
similar  to  those  which  follow,  when  a  paper  money,  not  exchange¬ 
able  for  specie  at  the  will  of  the  holder,  is  forced  into  circulation. 
Such  a  currency  is  necessarily  confined  to  the  country  where  it  is 
issued:  it  cannot,  when  too  abundant,  diffuse  itself  generally  amongst 
other  countries.  The  level  of  circulation  is  destroyed,  and  the  ex¬ 
change  will  inevitably  be  unfavourable  to  the  country  where  it  is 
excessive  in  quantity  :  just  so  would  be  the  effects  of  a  metallic 
circulation,  if  by  forcible  means,  by  laws  which  could  not  be  evaded, 
money  should  be  detained  in  a  country,  when  the  stream  of  trade 
gave  it  an  impetus  towards  other  countries. 

When  each  country  has  precisely  the  quantity  of  money  which 
it  ought  to  have,  money  will  not  indeed  be  of  the  same  value  in 
each,  for  with  respect  to  many  commodities  it  may  differ  5,  10,  or 
even  20  per  cent.,  but  the  exchange  will  be  at  par.  One  hundred 
pounds  in  England,  or  the  silver  which  is  in  100Z.,  will  purchase 
a  bill  of  100Z.,  or  an  equal  quantity  of  silver  in  France,  Spain,  or 
^Holland.  . 

In  speaking  of  the  exchange  and  the  comparative  value  of  money' 
in  different  countries,  we  must  not  in  the  least  refer  to  the  value  of 
money  estimated  in  commodities,  in  either  country.  The  exchange 
is  never  ascertained  by  estimating  the  comparative  value  of  money 
"n  corn,  cloth,  or  any  commodity  whatever,  but  by  estimating  the 
alue  of  the  currency  of  one  country,  in  the  currency  of  another. 

It  may  also  be  ascertained  by  comparing  it  with  some  standard 
common  to  both  countries.  If  a  bill  on  England  for  100Z.  will 
purchase  the  same  quantity  of  goods  in  France  or  Spain,  that  a  bill 
on  Hamburgh  for  the  same  sum  will  do,  the  exchange  between 
Hamburgh  and  England  is  at  par;  but  if  a  bill  on  England  for 
130Z.  will  purchase  no  more  than  a  bill  on  Hamburgh  for  100Z.,  the 
exchange  is  30  per  cent,  against  England. 

In  England  100Z.  may  purchase  a  bill,  or  the  right  of  receiving 
101Z.  in  Holland,  102Z.  in  France,  and  105Z.  in  Spain.  The  ex¬ 
change  with  England  is,  in  that  case,  said  to  be  1  per  cent,  against 


ON  FOREIGN  TRADE. 


85 


Holland,  2  percent,  against  France,  and  5  per  cent. against  Spain. 
It  indicates  that  the  level  of  currency  is  higher  than  it  should  be 
in  those  countries,  and  the  comparative  value  of  their  currencies, 
and  that  of  England,  would  be  immediately  restored  to  par,  by  ex¬ 
tracting  from  theirs,  or  by  adding  to  that  of  England. 

Those  who  maintain  that  our  currency  was  depreciated  during 
the  last  ten  years,  when  the  exchange  varied  from  20  to  30  per 
cent,  against  this  country,  have  never  contended,  as  they  have  been 
accused  of  doing,  that  money  could  not  be  more  valuable  in  one 
country  than  another,  as  compared  with  various  commodities  ;  but 
they  did  contend,  that  130/.  could  not  be  detained  in  England, 
unless  it  was  depreciated,  when  it  was  of  no  more  value,  estimated 
in  the  money  of  Hamburgh,  or  of  Holland,  than  the  bullion  in  100/. 

By  sending  130  good  English  pounds  sterling  to  Hamburgh, 
even  at  an  expense  of  5/.,  I  should  be  possessed  there  of  125/.  ; 
what  then  could  make  me  consent  to  give  130/.  for  a  bill  which 
would  give  me  100/.  in  Hamburgh,  but  that  my  pounds  were  not 
good  pounds  sterling  ? — they  were  deteriorated,  were  degraded  in 
intrinsic  value  below  the  pounds  sterling  of  Hamburgh,  and  if 
actually  sent  there,  at  an  expense  of  51.,  would  sell  only  for  100/. 
With  metallic  pounds  sterling,  it  is  not  denied  that  my  130/.  would 
procure  me  125/.  in  Hamburgh,  but  with  paper  pounds  sterling  I 
can  only  obtain  100/. ;  and  yet  it  was  maintained  that  130/.  in 
paper,  was  of  equal  value  with  130/.  in  silver  or  gold. 

Some  indeed  more  reasonably  maintained,  that  130/.  in  paper 
was  not  of  equal  value  with  130/.  in  metallic  money  ;  but  they 
said  that  it  was  the  metallic  money  which  had  changed  its  value, 
and  not  the  paper  money.  They  wished  to  confine  the  meaning 
of  the  word  depreciation  to  an  actual  fall  of  value,  and  not  to  a 
comparative  difference  between  the  value  of  money,  and  the  stand¬ 
ard  by  which  by  law  it  is  regulated.  One  hundred  pounds  of 
English  money  was  formerly  of  equal  value  with,  and  could  pur¬ 
chase  100/.  of  Hamburgh  money  :  in  any  other  country  a  bill  of 
100/.  on  England,  or  on  Hamburgh,  could  purchase  precisely  the 
same  quantity  of  commodities.  To  obtain  the  same  things,  I  was 
lately  obliged  to  give  130/.  English  money,  when  Hamburgh  could 
obtain  them  for  100/.  Hamburgh  money.  If  English  money  was 
of  the  same  value  then  as  before,  Hamburgh  money  must  have 
risen  in  value.  But  where  is  the  proof  of  this  ?  IIowr  is  it  to  be 
ascertained  whether  English  money  has  fallen,  or  Hamburgh  money 
lias  risen  ?  there  is  no  standard  by  which  this  can  be  determined. 
It  is  a  plea  which  admits  of  no  proof,  and  can  neither  be  positively 
affirmed,  nor  positively  contradicted.  The  nations  of  the  world 
must  have  been  early  convinced,  that  there  was  no  standard  of 
value  in  nature,  to  which  they  might  unerringly  refer,  and  there¬ 
fore  chose  a  medium,  which  on  the  whole  appeared  to  them  less 
variable  than  any  other  commodity. 

To  this  standard  we  must  conform  till  the  law  is  changed,  and 


ON  FOREIGN  TRADE. 


8G 


till  some  other  commodity  is  discovered,  by  the  use  of  which  we 
shall  obtain  a  more  perfect  standard  than  that  which  we  have 
established.  While  gold  is  exclusively  the  standard  in  this  country, 
money  will  be  depreciated,  when  a  pound  sterling  is  not  of  equal 
value  with  5  dwts.  and  3  grs.  of  standard  gold,  and  that,  whether 
gold  rises  or  falls  in  genera)  value. 


[  87  3 


CHAPTER  VIII. 


ON  TAXES. 


( 


Taxes  are  a  portion  of  the  produce  of  the  land  and  labour  of  a 
country,  placed  at  the  disposal  of  the  government ;  and  are  always 
ultimately  paid,  cither  from  the  capital,  or  from  the  revenue  of  the 
country. 

We  have  already  shown  how  the  capital  of  a  country  is  either 
fixed  or  Circulating,  according  as  it  is  of  a  more  or  of  a  less  durable 
nature.  It  is  difficult  to  define  strictly,  where  the  distinction 
between  circulating  and  fixed  capital  begins ;  for  there  are  almost 
infinite  degrees  in  the  durability  of  capital.  The  food  of  a  country 
is  consumed  and  reproduced  at  least  once  in  every  year;  the  cloth¬ 
ing  of  the  labourer  is  probably  not  consumed  and  reproduced  in 
less  than  two  years  ;  whilst  his  house  and  furniture  are  calculated 
to  endure  for  a  period  of  ten  or  twenty  years. 

When  the  annual  productions  of  a  country  more  than  replace  its 
annual  consumption,  it  is  said  to  increase  its  capital ;  when  its 
annual  consumption  is  not  at  least  replaced  by  its  annual  produc¬ 
tion,  it  is  said  to  diminish  its  capital.  Capital  may  therefore  be 
increased  by  an  increased  production,  or  by  a  diminished  unpro¬ 
ductive  consumption. 

If  the  consumption  of  the  government,  when  increased  by  the 
levy  of  additional  taxes,  be  met  either  by  an  increased  production, 
or  by  a  diminished  consumption  on  the  part  of  the  people,  the  taxes 
will  fall  upon  revenue,  and  the  national  capital  will  remain  unim¬ 
paired  ;  but  if  there  be  no  increased  production  or  diminished 
unproductive  consumption  on  the  part  of  the  people,  the  taxes  will 
necessarily  fall  on  capital,  that  is  to  say,  they  will  impair  the  fund 
allotted  to  productive  consumption.* 

In  proportion  as  the  capital  of  a  country  is  diminished,  its  pro¬ 
ductions  will  be  necessarily  diminished  ;  and,  therefore,  if  the  same 


*  It  must  bo  understood  that  all  the  productions  of  a  country  are  consumed ;  but 
it  makes  the  greatest  difference  imaginable  whether  they  are  consumed  by  those  who 
reproduce,  or  by  those  who  do  not  reproduce  another  value.  When  we  say  that 
revenue  is  saved,  and  added  to  capital,  what  we  mean  is,  that  the  portion  of  revenue, 
so  said  to  be  added  to  capital,  is  consumed  by  productive  instead  of  unproductive 
labourers.  There  can  be  no  greater  error  than  in  supposing  that  capital  is  increased 
by  non-consumption.  If  the  price  of  labour  should  rise  so  high,  that  notwithstanding 
the  increase  of  capital,  no  more  could  be  employed,  I  should  say  that  such  increase 
of  capital  would  be  still  unproductiveiy  consumed. 


88 


ON  TAXES 


unproductive  expenditure  on  the  part  of  the  people  and  of  the 
government  continue,  with  a  constantly  diminishing  annual  re¬ 
production,  the  resources  of  the  pcojile  and  the  state  will  fall  away 
with  increasing  rapidity,  and  distress  and  ruin  will  follow. 

Notwithstanding  the  immense  expenditure  of  the  English  govern¬ 
ment  during  the  last  twenty  years,  there  can  be  little  doubt  but 
that  the  increased  production  on  the  part  of  the  people  has  more 
than  compensated  for  it.  The  national  capital  has  not  merely  been 
unimpaired,  it  has  been  greatly  increased,  and  the  annual  revenue 
of  the  people,  even  after  the  payment  of  their  taxes,  is  probably 
greater  at  the  present  time  than  at  any  former  period  of  our  history. 

For  the  proof  of  this,  we  might  refer  to  the  increase  of  population 
— to  the  extension  of  agriculture — to  the  increase  of  shipping  and 
manufactures — to  the  building  of  docks — to  the  opening  of  numerous 
canals,  as  well  as  to  many  other  expensive  undertakings ;  all  de¬ 
noting  an  increase  both  of  capital  and  of  annual  production. 

Still,  however,  it  is  certain,  that  but  for  taxation,  this  increase 
of  capital  would  have  been  much  greater.  There  are  no  taxes 
which  have  not  a  tendency  to  lessen  the  power  to  accumulate.  All 
taxes  must  either  fall  on  capital  or  revenue.  If  they  encroach  on 
capital,  they  must  proportionally  diminish  that  fund  by  whose 
extent  the  extent  of  the  productive  industry  of  the  country  must 
always  be  regulated ;  and  if  they  fall  on  revenue,  they  must  either 
lessen  accumulation,  or  force  the  contributors  to  save  the  amount 
of  the  tax,  by  making  a  corresponding  diminution  of  their  former 
unproductive  consumption  of  the  necessaries  and  luxuries  of  life. 
Some  taxes  will  produce  these  effects  in  a  much  greater  degree 
than  others ;  but  the  great  evil  of  taxation  is  to  be  found,  not  so 
much  in  any  selection  of  its  objects,  as  in  the  general  amount  of 
its  effects  taken  collectively. 

Taxes  are  not  necessarily  taxes  on  capital,  because  they  are  laid 
on  capital ;  nor  on  income,  because  they  are  laid  on  income.  If 
from  my  income  of  1000/.  per  annum,  I  am  required  to  pay  100/., 
it  will  really  be  a  tax  on  my  income,  should  I  be  content  with  the 
expenditure  of  the  remaining  900/. ;  but  it  will  be  a  tax  on  capital, 
if  I  continue  to  spend  1000/. 

The  capital  from  which  my  income  of  1000/.  is  derived,  may  be 
of  the  value  of  10,000/. ;  a  tax  of  one  per  cent,  on  such  capital 
would  be  100/. ;  but  my  capital  would  be  unaffected,  if,  after  paying 
this  tax,  I  in  like  manner  contented  myself  with  the  expenditure 
of  900/. 

The  desire  which  every  man  has  to  keep  his  station  in  life,  and 
to  maintain  his  wealth  at  the  height  which  it  has  once  attained, 
occasions  most  taxes,  whether  laid  on  capital  or  on  income,  to  be 
paid  from  income ;  and,  therefore,  as  taxation  proceeds,  or  as 
government  increases  its  expenditure,  the  annual  enjoyments  of  the 
people  must  be  diminished,  unless  they  are  enabled  proportionally 
to  increase  their  capitals  and  income.  It  should  be  the  policy  of 


CS  TAXES. 


89 

governments  to  encourage  a  disposition  to  do  this  in  the  people, 
and  never  to  lay  such  taxes  as  will  inevitably  fall  on  capital ;  since, 
by  so  doing,  they  impair  the  funds  for  the  maintenance  of  labour, 
and  thereby  diminish  the  future  production  of  the  country. 

In  England  this  policy  has  been  neglected,  in  taxing  the  pro¬ 
bates  of  wills,  in  the  legacy  duty,  and  in  all  taxes  affecting  the 
transference  of  property  from  the  dead  to  the  living.  If  a  legacy 
of  1000/.  be  subject  to  a  tax  of  100/.,  the  legatee  considers  his 
legacy  as  only  900/.  and  feels  no  particular  motive  to  save  the  100/. 
duty  from  his  expenditure,  and  thus  the  capital  of  the  country  is 
diminished  ;  but  if  he  had  really  received  1000/.,  and  had  been 
required  to  pay  100/.  as  a  tax  on  income,  on  wine,  on  horses,  or  on 
servants,  he  would  probably  have  diminished,  or  rather  not  in¬ 
creased  his  expenditure  by  that  sum,  and  the  capital  of  the  country 
would  have  been  unimpaired. 

“Taxes  upon  the  transference  of  property  from  the  dead  to  the 
living,”  says  Adam  Smith,  “  fall  finally,  as  well  as  immediately, 
upon  the  persons  to  whom  the  property  is  traixsfhjxcd.  Taxes  on 
the  sale  of  land  fall  altogether  upon  the  seller.  The  seller  is  almost 
alTv;ays  under  the  necessity  of  selling,  and  must,  therefore,  take  such 
a  price  as  he  can  get.  The  buyer  is  scarce  ever  under  the  neces¬ 
sity  of  buying,  and  will,  therefore,  only  give  such  a  price  as  he 
likes.  lie  considers  what  the  land  will  cost  him  in  tax  and  price 
together.  The  more  he  is  obliged  to  pay  in  the  way  of  tax,  the 
less  he  will  be  disposed  to  give  in  the  way  of  price.  Such  taxes, 
therefore,  fall  almost  always  upon  a  necessitous  person,  and  must, 
therefore,  be  very  cruel  and  oppressive.”  “  Stamp  duties,  and 
duties  upon  the  registration  of  bonds  and  contracts  for  borrowed 
money,  fall  altogether  upon  the  borrower,  and  in  fact  are  always 
paid  by  him.  Unties  of  the  same  kind  upon  law  proceedings  fali 
upon  the  suitors.  They  reduce  to  both  the  capital  value  of  the 
subject  in  dispute.  The  more  it  costs  to  acquire  any  property,  the 
less  must  be  the  neat  value  of  it  when  acquired.  All  taxes  upon 
the  transference  of  property  of  every  kind,  so  far  as  they  diminish 
the  capital  value  of  that  property,  tend  to  diminish  the  funds  des¬ 
tined  for  the  maintenance  of  labour.  They  are  all  more  or  less 
unthrifty  taxes,  that  increase  the  revenue  of  the  sovereign,  which 
seldom  maintains  any  but  unproductive  labourers,  at  the  expense 
of  the  capital  of  the  people,  which  maintains  none  but  productive.” 

But  this  is  not  the  only  objection  to  taxes  on  the  transference  of 
property ;  they  prevent  the  national  capital  from  being  distributed 
in  the  way  most  beneficial  to  the  community.  For  the  general 
prosperity,  there  cannot  be  too  much  facility  given  to  the  convey¬ 
ance  and  exchange  of  all  kinds  of  property,  as  it  is  by  such  means 
that  capital  of  every  species  is  likely  to  find  its  way  into  the  hands 
of  those  who  will  best  employ  it  in  increasing  the  productions  ot 
the  country.  “  Why/’  asks  M.  Say,  “  does  an  individual  wish  to 
sell  his  land  ?  it  is  because  he  has  another  employment  in  view  in 


ON  TANKS. 


yo 

which  his  funds  will  be  more  productive.  Why  does  another  wish 
to  purchase  this  same  land  ?  it  is  to  employ  a  capital  which  brings 
him  in  too  little,  which  was  unemployed,  or  the  use  of  which  he 
thinks  susceptible  of  improvement.  This  exchange  will  increase 
the  general  income,  since  it  increases  the  income  of  these  parties. 
But  if  the  charges  are  so  exorbitant  as  to  prevent  the  exchange, 
they  are  an  obstacle  to  this  increase  of  the  general  income.”  Those 
taxes,  however,  are  easily  collected  ;  and  this  by  many  may  be 
thought  to  afford  some  compensation  for  their  injurious  effects. 


CHAPTER  IX. 


TAXES  ON  RAW  PRODUCE. 

Having  in  a  former  part  of  this  work  established,  I  hope  satisfac¬ 
torily,  the  principle,  that  the  price  of  corn  is  regulated  by  the  cost 
of  its  production  on  that  land  exclusively,  or  rather  with  that 
capital  exclusively,  which  pays  no  rent,  it  will  follow  that  what¬ 
ever  may  increase  the  cost  of  production  will  increase  the  price  ; 
whatever  may  reduce  it  will  lower  the  price.  The  necessity,  of 
cultivating  poorer  land,  or  of  obtaining  a  less  return  with  a  given 
additional  capital  on  land  already  in  cultivation,  will  inevitably 
raise  the  exchangeable  Value  of  raw  produce.  The  discovery  of 
machinery,  which  will  enable  the  cultivator  to  obtain  his  corn  at  a 
less  cost  of  pi’oduction,  will  necessarily  lower  its  exchangeable 
value.  Any  tax  which  may  be  imposed  on  the  cultivator,  whether 
in  the  shape  of  land-tax,  tithes,  or  a  tax  on  the  produce  when  ob¬ 
tained,  will  increase  the  cost  of  production,  and  will  therefore  raise 
the  price  of  raw  produce. 

If  the  price  of  raw  produce  did  not  rise  so  as  to  compensate  the. 
cultivator  for  the  tax,  he  would  naturally  quit  a  trade  where  his 
profits  were  reduced  below  the  general  level  of  profits  ;  this  would 
occasion  a  diminution  of  supply,  until  the  unabated  demand  should 
have  produced  such  a  rise  in  the  price  of  raw  produce,  as  to  make 
the  cultivation  of  it  equally  profitable  with  the  investment  of  capital 
in  any  other  trade. 

A  rise  of  price  is  the  only  means  by  which  he  could  pay  the  tax, 
and  continue  to  derive  the  usual  and  general  profits  from  this  em¬ 
ployment  of  his  capital.  He  could  not  deduct  the  tax  from  his 
rent,  and  oblige  his  landlord  to  pay  it,  for  he  pays  no  rent.  He 
would  not  deduct  it  from  his  profits,  for  there  is  no  reason  why  he 
should  continue  in  an  employment  which  yields  small  profits,  when 
all  other  employments  are  yielding  greater.  There  can  then  be  no 
question,  but  that  he  will  have  the  power  of  raising  the  price  of 
raw  produce  by  a  sum  equal  to  the  tax. 

A  tax  on  raw  produce  would  not  be  paid  by  the  landlord ;  it 
would  not  be  paid  by  the  farmer ;  but  it  would  be  paid,  in  an  in¬ 
creased  price,  by  the  consumer. 

Rent,  it  should  be  remembered,  is  the  difference  between  the 
produce  obtained  by  equal  portions  of  labour  and  capital  employed 


92 


TAXES  ON  RAW  PRODUCE. 


on  land  of  the  same  or  different  qualities.  It  should  be  remembered, 
too.  that  the  money  rent  of  land,  and  the  corn  rent  of  land,  do  not 
vary  in  the  same  proportion. 

In  the  case  of  a  tax  on  raw  produce,  of  a  land-tax,  or  tithes,  the 
corn  rent  of  land  will  vary,  while  the  money  rent  will  remain  as 
before. 

If,  as  we  have  before  supposed,  the  land  in  cultivation  were  of 
three  qualities,  and  that  with  an  equal  amount  of  capital, 

180  qrs.  of  corn  were  obtained  from  land  No.  1. 

170 . from . 2. 

160 . from . 3. 

the  rent  of  No.  1  would  be  20  quarters,  the  difference  between  that 
of  No.  3  and  No.  1  ;  and  of  No.  2,  10  quarters,  the  difference  be¬ 
tween  that  of  No.  3  and  No.  2 ;  while  No.  3  would  pay  no  rent 
whatever. 

Now,  if  the  price  of  corn  were  4 /.  per  quarter,  the  money  rent  of 
No.  1  would  be  80 /.,  and  that  of  No.  2,  40/. 

Suppose  a  tax  of  8s.  per  quarter  to  be  imposed  on  corn  ;  then 
the  price  would  rise  to  4/.  8s. ;  and  if  the  landlords  obtained  the 
same  corn  rent  as  before,  the  rent  of  No.  1  would  be  88/.  and  that 
of  No.  2,  44/.  But  they  would  not  obtain  the  same  corn  rent ;  the 
tax  would  fall  heavier  on  No.  1  than  on  No.  2,  and  on  No.  2  than 
on  No.  3,  because  it  would  be  levied  on  a  greater  quantity  of  corn. 
It  is  the  difficulty  of  production  on  No.  3  which  regulates  price  ; 
and  corn  rises  to  4/.  8s.,  that  the  profits  of  the  capital  employed  on 
No.  3  may  be  on  a  level  with  the  general  profits  of  stock. 

The  produce  and  tax  on  the  three  qualities  of  land  will  be  as 
follows  : 

No.  1,  yielding  180  qrs  at  4/.  8s.  per  qr.  .  .  .  L.792 

Deduct  the  value  of  16.3  or  8s.  per  qr.  on  180  qrs.  .  .  72 

Net  corn  produce  163.7  Net  money  produce  L.720 

No.  2,  yielding  170  qrs.  at  4/.  8s.  per  qr.  .  .  .  L.748 

Deduct  the  value  of  1 5.4  1  Vs'  at,  ^  8s'  or  8s’  Per  ^  l  68 

Net  corn  produce  154.6  Net  money  produce  L.680 

No.  3,  yielding  160  qrs.  at  4Z.  8s . L.704 

Deduct  the  value  of  14.5  -I l™'  at,  8s’  or  8s'  Per  V- 1  64 

Net  com  produce  145.5  Net  money  produce  L.640 

The  money  rent  of  No.  1  would  continue  to  be  80/.,  or  the  differ¬ 
ence  between  640/. and  720/.;  and  that  of  No.  2,  40/.,  or  the  difference 
between  640/.  and  680/.,  precisely  the  same  as  before  ;  but  the  corn 
rent  will  be  reduced  from  20  quarters  on  No.  1,  to  18.2  quarters,  the 


TAXES  OX  TJA'.V  TRODUCE. 


93 


difference  between  145.5  and  1G3.7  quarters,  and  that  on  No.  2  from 
10  to  9.1  quarters,  the  difference  between  145.5  and  154. G  quarters: 

A  tax  on  corn,  then,  would  fall  on  the  consumers  of  corn,  and 
would  raise  its  value,  as  compared  with  all  other  commodities,  in  a 
degree  proportioned  to  the  tax.  In  proportion  as  raw  produce 
entered  into  the  composition  of  other  commodities,  would  their 
value  also  he  raised,  unless  the  tax  were  countervailed  by  other 
causes.  They  would  in  fact  he  indirectly  taxed,  and  their  value 
would  rise  in  proportion  to  the  tax. 

A  tax,  however,  on  raw  produce,  and  on  the  necessaries  of  the 
labourer,  would  have  another  effect — it  would  raise  wages.  From 
the  effect  of  the  principle  of  population  on  the  increase  of  mankind, 
wages  of  the  lowest  kind  never  continue  much  above  that  rate 
which  nature  and  habit  demand  for  the  support  of  the  labourers.  This 
class  is  never  able  to  bear  an)’  considerable  proportion  of  taxation  ; 
and,  consequently,  if  they  had  to  pay  8s.  per  quarter  in  addition  for 
wheat,  and  in  some  smaller  proportion  for  other  necessaries,  they 
would  not  be  able  to  subsist  on  the  same  ■wages  as  before,  and  to 
keep  up  the  race  of  labourers.  Wages  would  inevitably  and  neces¬ 
sarily  rise  ;  and,  in  proportion  as  they  rose,  profits  would  fall.  Go¬ 
vernment  would  receive  a  tax  of  8s.  per  quarter  on  all  the  corn 
consumed  in  the  country,  a  part  of  which  would  be  paid  directly  by 
the  consumers  of  corn ;  the  other  part  would  be  paid  indirectly 
by  those  who  employed  labour,  and  woidd  affect  profits  in  the  same 
manner  as  if  wages  had  been  raised  from  the  increased  demand  for 
labour  compared  with  the  supply,  or  from  an  increasing  difficulty 
of  obtaining  the  food  and  necessaries  required  by  the  labourer. 

In  as  far  as  the  tax  might  affect  consumers,  it  would  be  an  equal 
tax,  but  in  as  far  as  It  would  affect  profits,  it  would  be  a  partial 
tax ;  for  it  would  neither  operate  on  the  landlord  nor  on  the  stock¬ 
holder,  since  they  would  continue  to  receive,  the  one  the  same  money 
rent,  the  other  the  same  money  dividends  as  before.  A  tax  on 
the  produce  of  the  land  then  would  operate  as  follows  : — 

1st,  It  would  raise  the  price  of  raw  produce  by  a  sum  equal  to 
the  tax,  and  would  therefore  fall  on  each  consumer  in 
proportion  to  his  consumption. 

2dly,  It  would  raise  the  wages  of  labour,  and  lower  profits. 

It  may  then  be  objected  against  such  a  tax, 

1st,  That  by  raising  the  wages  of  labour,  and  lowering  profits,  it 
is  an  unequal  tax,  as  affects  the  income  of  the  farmer, 
trader,  and  manufacturer,  and  leaves  untaxed  the  income 
of  the  landlord,  stockholder,  and  others  enjoying  fixed 
incomes. 

2dlv,  That  there  would  be  a  considerable  interval  between  the  rise 
in  the  price  of  corn  and  the  rise  of  wages,  during  which 
much  distress  would  bo  experienced  by  the  labourer. 


TAXES  ON  RAW  PRODUCE. 


94 


odly,  That  raising  wages  and  lowering  profits  is  a  discour¬ 
agement  to  accumulation,  and  acts  in  the  same  way  as  a 
natural  poverty  of  soil. 

4thlv,  That  by  raising  the  price  of  raw  produce,  the  prices  of  all 
commodities  into  which  raw  produce  enters,  would  be 
raised,  and  that  therefore  we  should  not  meet  the  foreign 
manufacturer  on  equal  terms  in  the  general  market. 

W  ith  respect  to  the  first  objection,  that  by  raising  the  wages  of 
labour  and  lowering  profits,  it  acts  unequally,  as  it  affects  the  in¬ 
come  of  the  farmer,  trader,  and  manufacturer,  and  leaves  untaxed 
the  income  of  the  landlord,  stockholder,  and  others  enjoying  fixed 
incomes, — it  may  be  answered,  that  if  the  operation  of  the  tax  be 
unequal  it  is  for  the  legislature  to  make  it  equal,  by  taxing  directly 
the  rent  of  land,  and  the  dividends  from  stock.  By  so  doing, 
all  the  objects  of  an  income  tax  would  be  obtained,  without  the  in¬ 
convenience  of  having  recourse  to  the  obnoxious  measure  of  prying 
into  every  man’s  concerns,  and  arming  commissioners  with  powers 
repugnant  to  the  habits  and  feelings  of  a  free  country. 

With  respect  to  the  second  objection,  that  there  would  be  a  con¬ 
siderable  interval  between  the  rise  of  the  price  of  corn  and  the  rise 
of  wages,  during  which  much  distress  would  be  experienced  by  the 
lower  classes, — I  answer,  that  under  different  circumstances,  wages 
follow  the  price  of  raw  produce  with  very  different  degrees  of  cele¬ 
rity  ;  that  in  some  cases  no  effect  whatever  is  produced  on  wages 
by  a  rise  of  corn  ;  in  others,  the  rise  of  wages  precedes  the  rise  in  the 
price  of  corn ;  again,  in  some  the  effect  on  wages  is  slow,  and  in 
others  rapid. 

Those  who  maintain  that  it  is  the  price  of  necessaries  which  re¬ 
gulates  the  price  of  labour,  always  allowing  for  the  particular  state 
of  progression  in  which  the  society  may  be,  seem  to  have  conceded 
too  readily,  that  a  rise  or  fall  in  the  price  of  necessaries  will  be 
very  slowly  succeeded  by  a  rise  or  fall  of  wages.  A  high  price  of 
provisions  may  arise  from  very  different  causes,  and  may  accord¬ 
ingly  produce  very  different  effects.  It  may  arise  from 

1st,  A  deficient  supply. 

2d,  From  a  gradually  increasing  demand,  which  may  be  ulti¬ 
mately  attended  with  an  increased  cost  of  production. 

3dly/  From  a  fall  in  the  value  of  money. 

4thly,  From  taxes  on  necessaries. 

These  four  causes  have  not  been  sufficiently  distinguished  and 
separated  by  those  who  have  inquired,  into  the  influence  of  a  high 
price  of  necessaries  on  wages.  We  will  examine  them  severally. 

A  bad  harvest  will  produce  a  high  price  of  provisions,  and  the  high 
price  is  the  only  means  by  which  the  consumption  is  compelled  to 
conform  to  the  state  of  the  supply.  If  all  the  purchasers  of  corn 


TAXES  OX  RAW  PRODUCE. 


95 


were  rich,  the  price  might  rise  to  any  degree,  but  the  result  would 
remain  unaltered  ;  the  price  would  at  last  be  so  high,  that  the  least 
rich  would  be  obliged  to  forego  the  use  of  a  part  of  the  quantity 
which  they  usually  consumed,  as  by  diminished  consumption  alone 
the  demand  could  be  brought  down  to  the  limits  of  the  supply. 
Under  such  circumstances  no  policy  can  be  more  absurd,  than  that 
of  forcibly  regulating  money  wages  by  the  price  of  food,  as  is  fre¬ 
quently  done,  by  misapplication  of  the  poor  laws.  Such  a  measure 
affords  no  real  relief  to  the  labourer,  because  its  effect  is  to  raise 
still  higher  the  price  of  corn,  and  at  last  he  must  be  obliged  to  limit 
his  consumption  in  proportion  to  the  limited  supply.  In  the  natural 
course  of  affairs  a  deficient  supply  from  bad  seasons,  without  any 
pernicious  and  unwise  interference,  would  not  be  followed  by  a  rise 
of  wages.  The  raising  of  wages  is  merely  nominal  to  those  who 
receive  them ;  it  increases  the  competition  in  the  corn  market,  and 
its  ultimate  effect  is  to  raise  the  profits  of  the  growers  and  dealers 
in  corn.  The  wages  of  labour  are  really  regulated  by  the  propor¬ 
tion  between  the  supply  and  demand  of  necessaries,  and  the  supply 
and  demand  of  labour ;  and  money  is  merely  the  medium,  or  mea¬ 
sure,  in  which  wages  are  expressed.  In  this  case,  then,  the  distress 
of  the  labourer  is  unavoidable,  and  no  legislation  can  afford  a  re¬ 
medy,  except  by  the  importation  of  additional  food,  or  by  adopting 
the  most  useful  substitutes. 

When  a  high  price  of  corn  is  the  effect  of  an  increasing  demand, 
it  is  always  preceded  by  an  increase  of  wages,  for  demand  cannot 
increase,  without  an  increase  of  means  in  the  people  to  pay  for  that 
which  they  desire.  An  accumulation  of  capital  naturally  produces 
an  increased  competition  among  the  employers  of  labour,  and  a 
consequent  rise  in  its  price.  The  increased  wages  are  not  always 
immediately  expended  on  food,  but  are  first  made  to  contribute  to 
the  other  enjoyments  of  the  labourer.  Ilis  improved  condition,  how¬ 
ever,  induces,  and  enables  him  to  marry,  and  then  the  demand  for 
food  for  the  support  of  his  family  naturally  supersedes  that  of  those 
other  enjoyments  on  which  his  wages  were  temporarily  expended. 
Corn  rises,  then,  because  the  demand  for  it  increases,  because  there 
are  those  in  the  society  who  have  improved  means  of  paying  for  it ; 
and  the  profits  of  the  farmer  will  be  raised  above  the  general  level 
of  profits,  till  the  requisite  quantity  of  capital  has  been  employed  on 
its  production.  Whether,  after  this  has  taken  place,  corn  shall 
again  fall  to  its  former  price,  or  shall  continue  permanently  higher, 
will  depend  on  the  quality  of  the  land  from  which  the  increased 
quantity  of  corn  has  been  supplied.  If  it  be  obtained  from  land  of 
the  same  fertility  as  that  which  was  last  in  cultivation,  and  with  nc 
greater  cost  of  labour,  the  price  will  fall  to  its  former  state  ;  if  from 
poorer  land,  it  will  continue  permanently  higher.  The  high  wages 
in  the  first  instance  proceeded  from  an  increase  in  the  demand  for 
labour :  inasmuch  as  it  encouraged  marriage,  and  supported  chil¬ 
dren,  it  produced  the  effect  of  increasing  the  supply  of  labour. 


TAXES  ON  RAW  PRODUCE. 


9G 


But  when  the  supply  is  obtained,  wages  will  again  fall  to  their  for¬ 
mer  price,  if  corn  lias  fallen  to  its  former  price :  to  a  higher  than 
the  former  price,  if  the  increased  supply  of  corn  has  been  produced 
from  land  of  an  inferior  quality.  A  high  price  is  by  no  means 
incompatible  with  an  abundant  supply  :  the  price  is  permanently 
high,  not  because  the  quantity  is  deficient,  but  because  there  has 
been  an  increased  cost  in  producing  it.  It  generally  happens, 
indeed,  that  when  a  stimulus  has  been  given  to  population,  an  effect 
is  produced  beyond  what  the  case  requires  ;  the  population  may  be, 
and  generally  is,  so  much  increased  as,  notwithstanding  the  increased 
demand  for  labour,  to  bear  a  greater  proportion  to  the  funds  for 
maintaining  labourers  than  before  the  increase  of  capital.  In  this 
case  a  reaction  will  take  place,  wages  will  be  below  their  natural  level, 
and  will  continue  so,  till  the  usual  proportion  between  the  supply 
and  demand  has  been  restored.  In  this  case,  then,  the  rise  in  the 
price  of  corn  is  preceded  by  a  rise  of  wages,  and  therefore  entails 
no  distress  on  the  labourer. 

A  fall  in  the  value  of  money,  in  consequence  of  an  influx  of  the 
precious  metals  from  the  mines,  or  from  the  abuse  of  the  privileges 
of  banking,  is  another  cause  for  the  rise  of  the  price  of  food ;  but 
it  will  make  no  alteration  in  the  quantity  produced.  It  leaves 
undisturbed  too  the  number  of  labourers,  as  well  as  the  demand  for 
them;  for  there  will  be  neither  an  increase  nor  a  diminution  of 
capital.  The  quantity  of  necessaries  to  be  allotted  to  the  labourer, 
depends  on  the  comparative  demand  and  supply  of  necessaries, 
with  the  comparative  demand  anti  supply  of  labour ;  money  being 
only  the  medium  in  which  the  quantity  is  expressed ;  and  as  neither 
of  these  is  altered,  the  real  reward  of  the  labourer  will  not  alter. 
Money  wages  will  rise,  but  they  will  only  enable  him  to  furnish 
himself  with  the  same  quantity  of  necessaries  as  before.  Those 
who  dispute  this  principle,  are  bound  to  show  why  an  increase  of 
money  should  not  have  the  same  effect  in  raising  the  price  of  labour, 
the  quantity  of  which  has  not  been  increased,  as  they  acknowledge 
it  would  have  on  the  price  of  shoes,  of  hats,  and  of  corn,  if  the 
quantity  of  those  commodities  were  not  increased.  The  relative 
market  value  of  hats  and  shoes  is  regulated  by  the  demand  and 
supply  of  hats,  compared  with  the  demand  and  supply  of  shoes, 
and  money  is  but  the  medium  in  which  their  value  is  expressed. 
If  shoes  be  doubled  in  price,  hats  will  also  be  doubled  in  price,  and 
they  will  retain  the  same  comparative  value.  So  if  corn  and  all 
the  necessaries  of  the  labourer  be  doubled  in  price,  labour  will  be 
doubled  in  price  also ;  and  while  there  is  no  interruption  to  the 
usual  demand  and  supply  of  necessaries  and  of  labour,  there  can  be 
no  reason  why  they  should  not  preserve  their  relative  value. 

Neither  a  fall  in  the  value  of  money,  nor  a  tax  on  raw  pro¬ 
duce,  though  each  will  raise  the  price,  will  necessarily  interfere  with 
the  quantity  of  raw  produce,  or  with  the  number  of  people,  who 
arc  both  able  to  purchase,  and  willing  to  consume  it.  It  is  verv 


TAXES  ON  KAW  PRODUCE. 


97 


easy  to  perceive  why,  when  the  capital  of  a  country  increases  irre¬ 
gularly,  wages  should  rise,  whilst  the  price  of  corn  remains  sta¬ 
tionary,  or  rises  in  a  less  proportion  ;  and  why,  when  the  capital 
of  a  country  diminishes,  wages  should  fall  whilst  corn  remains 
stationary,  or  falls  in  a  much  less  proportion,  and  this  too  for  a 
considerable  time;  the  reason  is,  because  labour  is  a  commodity 
which  cannot  be  increased  and  diminished  at  pleasure.  If  there 
are  too  few  hats  in  the  market  for  the  demand,  the  price  will  rise, 
but  only  for  a  short  time ;  for  in  the  course  of  one  year,  by  em¬ 
ploying  more  capital  in  that  trade,  any  reasonable  addition  may  be 
made  to  the  quantity  of  hats,  and  therefore  their  market  price 
cannot  long  very  much  exceed  their  natural  price ;  but  it  is  not  so 
with  men  ;  you  cannot  increase  their  number  in  one  or  two  years 
when  there  is  an  increase  of  capital,  nor  can  you  rapidly  diminish 
their  number  when  capital  is  in  a  retrograde  state  ;  and,  therefore, 
the  number  of  bands  increasing  or  diminishing  slowly,  whilst  the 
funds  for  the  maintenance  of  labour  increase  or  diminish  rapidly, 
there  must  be  a  considerable  interval  before  the  price  of  labour  is 
exactly  regulated  by  the  price  of  corn  and  necessaries ;  but  in  the 
case  of  a  fall  in  the  value  of  money,  or  of  a  tax  on  corn,  there  is 
not  necessarily  any  excess  in  the  supply  of  labour,  nor  any  abate¬ 
ment  of  demand,  and  therefore  there  can  be  no  reason  why  the 
labourer  should  sustain  a  real  diminution  of  wages. 

A  tax  on  corn  does  not  necessarily  diminish  the  quantity  of  corn, 
it  only  raises  its  money  price ;  it  does  not  necessarily  diminish  the 
demand  compared  with  the  supply  of  labour;  why  then  should  it 
diminish  the  portion  paid  to  the  labourer?  Suppose  it  true  that 
it  did  diminish  the  quantity  given  to  the  labourer,  in  other  words, 
that  it  did  not  raise  his  money  wages  in  the  same  proportion  as 
the  tax  raised  the  price  of  the  corn  which  he  consumed  ;  would  not 
the  supply  of  corn  exceed  the  demand  ? — would  it  not  fall  in  price? 
and  would  not  the  labourer  thus  obtain  bis  usual  portion  ?  In  such 
case,  indeed,  capital  would  be  withdrawn  from  agriculture  ;  for  if 
the  price  were  not  increased  by  the  whole  amount  of  the  tax, 
agricultural  profits  would  be  lower  than  the  general  level  of  pi'ofits, 
and  capital  would  seek  a  more  advantageous  employment.  In 
regard,  then,  to  a  tax  on  raw  produce,  which  is  the  point  under 
discussion,  it  appears  to  me  that  no  interval  which  could  bear 
oppressively  on  the  labourer,  would  elapse  between  the  rise  in  the 
price  of  raw  produce,  and  the  rise  in  the  wages  of  the  labourer ; 
and  that  therefore  no  other  inconvenience  would  be  suffered  by  this 
class,  than  that  which  they  would  suffer  from  any  other  mode  of 
taxation,  namely,  the  risk  that  the  tax  might  infringe  on  the  funds 
destined  for  the  maintenance  of  labour,  and  might  therefore  check 
or  abate  the  demand  for  it. 

With  respect  to  the  third  objection  against  taxes  on  raw  produce, 
namely,  that  the  raising  wages,  and  lowering  profits,  is  a  dis¬ 
couragement  to  accumulation,  and  acts  in  the  same  way  as  a  natural 


96 


TAXES  OX  1IAW  PRODUCE. 


poverty  of  soil ;  I  have  endeavoured  to  show  in  another  part  of  this 
work  that  savings  may  be  as  effectually  made  from  expenditure  as 
from  production  ;  from  a  reduction  in  the  value  of  commodities,  as 
from  a  rise  in  the  rate  of  profits.  By  increasing  my  pi’ofits  from 
1000/.  to  1,200/.,  whilst  prices  continue  the  same,  my  power  of  in¬ 
creasing  my  capital  by  savings  is  increased,  but  it  is  not  increased 
so  much  as  it  would  be  if  my  profits  continued  as  before,  whilst 
commodities  were  so  lowered  in  price,  that  800/.  woidd  procure  me 
as  much  as  1000/.  purchased  before. 

Now  the  sum  required  by  the  tax  must  be  raised,  and  the  ques¬ 
tion  simply  is,  whether  the  same  amount  shall  be  taken  from  indi¬ 
viduals  by  diminishing  their  profits,  or  by  raising  the  prices  of  the 
commodities  on  which  their  profits  will  be  expended. 

Taxation  under  every  form  presents  but  a  choice  of  evils ;  if  it 
do  not  act  on  profit,  or  other  sources  of  income,  it  must  act  on  ex¬ 
penditure  ;  and  provided  the  burthen  be  equally  borne,  and  do  not 
repress  reproduction,  it  is  indifferent  on  which  it  is  laid.  Taxes  on 
production,  or  on  the  profits  of  stock,  whether  applied  immediately 
to  profits,  or  indirectly,  by  taxing  the  land  or  its  produce,  have  this 
advantage  over  other  taxes ;  that,  provided  all  other  income  be 
taxed,  no  class  of  the  community  can  escape  them,  and  each  con¬ 
tributes  according  to  his  means. 

From  taxes  on  expenditure  a  miser  may  escape;  he  may  have 
an  income  of  10,000/.  per  annum,  and  expend  only  300/. ;  but  from 
taxes  on  profits,  whether  direct  or  indirect,  he  cannot  escape ;  he 
will  contribute  to  them  either  by  giving  up  a  part,  or  the  value  of 
a  part  of  his  produce  ;  or  by  the  advanced  prices  of  the  necessaries 
essential  to  production,  he  will  be  unable  to  continue  to  accumulate 
at  the  same  rate.  He  may,  indeed,  have  an  income  of  the  same 
value,  but  he  will  not  have  the  same  command  of  labour,  nor  of  an 
equal  quantity  of  materials  on  which  such  labour  can  be  exercised. 

If  a  country  is  insulated  from  all  others,  having  no  commerce 
with  any  of  its  neighbours,  it  can  in  no  way  shift  any  portion  of 
its  taxes  from  itself.  A  portion  of  the  produce  of  its  land  and 
labour  will  be  devoted  to  the  service  of  the  State ;  and  I  cannot 
but  think  that,  unless  it  presses  unequally  on  that  class  which  ac¬ 
cumulates  and  saves,  it  will  be  of  little  importance  whether  the 
taxes  be  levied  on  profits,  on  agricultural,  or  on  manufactured  com¬ 
modities.  If  my  revenue  be  1000/.  per  annum,  and  I  must  pay 
taxes  to  the  amount  of  100/.,  it  is  of  little  importance  whether  I 
pay  it  from  my  revenue,  leaving  myself  only  900/.,  or  pay  100/.  in 
addition  for  my  agricultural  commodities,  or  for  my  manufactured 
goods.  If  100/.  is  my  fair  proportion  of  the  expenses  of  the  country, 
the  virtue  of  taxation  consists  in  making  sure  that  I  shall  pay  that 
100/.,  neither  more  nor  less;  and  that  cannot  be  effected  in  any 
manner  so  securely  as  by  taxes  on  wages,  profits,  or  raw  produce. 

The  fourth  and  last  objection  which  remains  to  be  noticed  is : 
That  by  raising  the  price  of  raw  produce,  the  prices  of  all  commo- 


TAXES  ON  RAW  PRODUCE. 


09 


dities  into  which  raw  produce  enters  will  be  raised,  and  that, 
therefore,  we  shall  not  meet  the  foreign  manufacturer  on  equal  terms 
in  the  general  market. 

In  the  first  place,  corn  and  all  home  commodities  could  not  be 
materially  raised  in  price  without  an  influx  of  the  precious  metals ; 
for  the  same  quantity  of  money  could  not  circulate  the  same  quan¬ 
tity  of  commodities  at  high  as  at  low  prices,  and  the  precious  metals 
never  could  be  purchased  with  dear  commodities.  When  more 
gold  is  required,  it  must  be  obtained  by  giving  more,  and  not  fewer 
commodities  in  exchange  for  it.  Neither  could  the  want  of  money 
be  supplied  by  paper,  for  it  is  not  paper  that  regulates  the  value  of 
gold  as  a  commodity,  but  gold  that  regulates  the  value  of  paper. 
Unless,  then,  the  value  of  gold  could  be  lowered,  no  paper  could  be 
added  to  the  circulation  without  being  depreciated.  And  that  the 
value  of  gold  could  not  be  lowered,  appears  clear,  when  we  consider 
that  the  value  of  gold  as  a  commodity  must  be  regulated  by  the 
quantity  of  goods  which  must  be  given  to  foreigners  in  exchange 
for  it.  When  gold  is  cheap,  commodities  are  dear;  and  when  gold 
is  dear,  commodities  are  cheap,  and  fall  in  price.  Now  as  no  cause 
is  shown  why  foreigners  should  sell  their  gold  cheaper  than  usual, 
it  does  not  appear  probable  that  there  would  be  any  influx  of  gold. 
W  ithout  such  an  influx  there  can  be  no  increase  of  quantity,  no 
fall  in  its  value,  no  rise  in  the  general  price  of  goods.* 

The  probable  effect  of  a  tax  on  raw  produce,  would  be  to  raise 
the  price  of  raw  produce,  and  of  all  commodities  in  which  raw 
produce  entered,  but  not  in  any  degree  proportioned  to  the  tax  ; 
while  other  commodities  in  which  no  raw  produce  entered,  such  as 
articles  made  of  the  metals  and  the  earths,  would  fall  in  price  : 
so  that  the  same  quantity  of  money  as  before  would  be  adequate 
to  the  whole  circulation. 

A  tax  which  should  have  the  effect  of  raising  the  price  of  all 
home  productions,  would  not  discourage  exportation,  except  during 
a  very  limited  time.  If  they  were  raised  in  price  at  home,  they 
could  not  indeed  immediately  be  profitably  exported,  because  they 
would  be  subject  to  a  burthen  here  from  which  abroad  they  were 
free.  The  tax  would  produce  the  same  effect,  as  an  alteration  in 
the  value  of  money,  which  was  not  general  and  common  to  all 
countries,  but  confined  to  a  single  one.  If  England  were  that 
country,  she  might  not  be  able  to  sell,  but  she  would  be  able  to 
buy,  because  importable  commodities  would  not  be  raised  in  price. 
Under  these  circumstances  nothing  but  money  could  be  exported 
in  return  for  foreign  commodities,  but  this  is  a  trade  which  could 
not  long  continue  ;  a  nation  cannot  be  exhausted  of  its  money,  for 
after  a  certain  quantity  has  left  it,  the  value  of  the  remainder  will 
rise,  and  such  a  price  of  commodities  will  be  the  consequence,  that 

*  It  may  be  doubted  whether  commodities,  raised  in  price,  merely  by  taxation, 
would  require  any  more  money  for  their  circulation.  I  believe  they  would  not. 


100 


TAXES  ON  RAW  PRODUCE. 


they  will  again  be  capable  of  being  profitably  exported.  When 
money  bad  risen,  therefore,  we  should  no  longer  export  it  in  return 
for  goods,  but  we  should  export  those  manufactures  which  had  first 
been  raised  in  price,  by  the  rise  in  the  price  of  the  raw  produce 
from  which  they  were  made,  and  then  again  lowered  by  the  ex¬ 
portation  of  money. 

But  it  may  be  objected,  that  when  money  so  rose  in  value,  it 
would  rise  with  respect  to  foreign  as  Well  as  home  commodities,  and 
therefore  that  all  encouragement  to  import  foreign  goods  would 
cease.  Thus,  suppose  we  imported  goods  which  cost  100£.  abroad, 
and  which  sold  for  120k  here,  we  should  cease  to  import  them,  when 
the  value  of  money  had  so  risen  in  England,  that  they  would  only 
sell  for  100k  here:  this,  however,  could  never  happen.  The  mo¬ 
tive  which  determines  us  to  import  a  commodity,  is  the  discovery 
of  its  relative  cheapness  abroad:  it  is  the  comparison  of  its  price 
abroad  with  its  price  at  home.  If  a  country  export  hats,  and  im¬ 
port  cloth,  it  does  so  because  it  can  obtain  more  cloth  by  making 
bats  and  exchanging  them  for  cloth,  than  if  it  made  the  cloth  it¬ 
self.  If  the  rise  of  raw  produce  occasions  any  increased  cost  of 
production  in  making  hats,  it  would  occasion  also  an  increased  cost 
in  making  cloth.  If,  therefore,  both  commodities  were  made  at 
home,  they  would  both  rise.  One,  however,  being  a  commodity 
which  we  import,  would  not  rise,  neither  would  it  fall,  when  the 
value  of  money  rose  ;  for  by  not  falling  it  would  regain  its  natural 
relation  to  the  exported  commodity.  The  rise  of  raw  produce 
makes  a  hat  rise  from  30  to  33  shillings,  or  10  per  cent.  :  the  same 
cause,  if  we  manufactured  cloth,  would  make  it  rise  from  20s.  to 
22s.  per  yard.  This  rise  does  not  destroy  the  relation  between  cloth 
and  hats  ;  a  hat  was,  and  continues  to  be,  worth  one  yard  and  a  half 
of  cloth.  But  if  we  import  cloth,  its  price  will  continue  uniformly  at 
20s.  per  yard,  unaffected  first  by  the  fall,  and  then  by  the  rise  in 
the  value  of  money  ;  whilst  hats,  which  had  risen  from  30s.  to  33s„ 
will  again  fall  from  33s.  to  30s.,  at  which  point  the  relation  between 
cloth  and  hats  will  be  restored. 

To  simplify  the  consideration  of  this  subject,  I  have  been  sup¬ 
posing  that  a  rise  in  the  value  of  raw  materials  would  affect,  in  an 
equal  proportion,  all  home  commodities ;  that  if  the  effect  on  one 
were  to  raise  it  10  per  cent.,  it  would  raise  all  10  per  cent. ;  but  as 
the  value  of  commodities  is  very  differently  made  up  of  raw  mate¬ 
rial  and  labour ;  as  some  commodities,  for  instance,  all  those  made 
from  the  metals,  would  be  unaffected  by  the  rise  of  raw  produce 
from  the  surface  of  the  earth,  it  is  evident  that  there  would  be  the 
greatest  variety  in  the  effects  produced  on  the  value  of  commodi¬ 
ties,  by  a  tax  on  raw  produce.  As  far  as  this  effect  was  produced, 
it  would  stimulate  or  retard  the  exportation  of  particular  commo¬ 
dities,  and  would  undoubtedly  be  attended  with  the  same  incon¬ 
venience  that  attends  the  taxing  of  commodities  ;  it  would  destroy 
the  natural  relation  between  the  value  of  each.  Thus  the  natural 


TAXES  ON  RAW  PRODUCE. 


101 


price  of  a  hat,  instead  of  being  the  same  as  a  yard  and  a  half  of 
cloth,  might  only  be  of  the  value  of  a  yard  and  a  quarter,  or  it 
might  be  of  the  value  of  a  yard  and  three  quarters,  and  there¬ 
fore  rather  a  different  direction  might  be  given  to  foreign  trade. 
All  these  inconveniences  would  probably  not  interfere  with  the 
value  of  the  exports  and  imports  ;  they  would  only  prevent  the 
very  best  distribution  of  the  capital  of  the  whole  world,  which  is 
never  so  well  regulated,  as  when  every  commodity  is  freely  allowed 
to  settle  at  its  natural  price,  unfettered  by  artificial  restraints. 

Although,  then,  the  rise  in  the  price  of  most  of  our  own  commo¬ 
dities  would  for  a  time  check  exportation  generally,  and  might 
permanently  prevent  the  exportation  of  a  few  commodities,  it  could 
not  materially  interfere  with  foreign  trade,  and  would  not  place  us 
under  any  comparative  disadvantage  as  far  as  regarded  competition 
in  foreign  markets. 


»  102  j 


CHAPTER  X. 


TAXES  ON  RENT. 

/  A  TAX  on  -rent  would  affect  rent  only ;  it  would  fall  wholly  on 
landlords,  and  could  not  be  shifted  to  any  class  of  consumers.  The 
landlord  could  not  raise  his  rent,  because  he  would  leave  unaltered 
the  difference  between  the  produce  obtained  from  the  least  produc¬ 
tive  land  in  cultivation,  and  that  obtained  from  land  of  every  other 
quality.  Three  sorts  of  land,  No.  1,  2,  and  3,  ai-e  in  cultivation, 
and  yield  respectively,  with  the  same  labour,  180,  170,  and  160 
quarters  of  wheat ;  but  No.  3  pays  no  rent,  and  is  therefore  untaxed  : 
the  rent  then  of  No.  2  cannot  be  made  to  exceed  the  value  of  ten, 
nor  No.  1  of  twenty,  quarters.  Such  a  tax  could  not  raise  the 
price  of  raw  produce,  because,  as  the  cultivator  of  No.  3  pays  neither 
rent  nor  tax,  he  would  in  no  way  be  enabled  to  raise  the  price  of 
the  commodity  produced.  A  tax  on  rent  would  not  discourage  the 
cultivation  of  fresh  land,  for  such  land  pays  no  rent,  and  would  be 
untaxed.  If  No.  4  were  taken  into  cultivation,  and  yielded  150 
quarters,  no  tax  would  be  paid  for  such  land  ;  but  it  would  create 
a  rent  of  ten  quarters  on  No.  3,  which  would  then  commence  pay¬ 
ing  the  tax. 

A  tax  on  rent,  as  rent  is  constituted,  would  discourage  cultivation, 
because  it  would  be  a  tax  on  the  profits  of  the  landlord.  The  term 
rent  of  land,  as  I  have  elsewhere  observed,  is  applied  to  the  whole 
amount  of  the  value  paid  by  the  farmer  to  his  landlord,  a  part  only 
of  which  is  strictly  rent.  The  buildings  and  fixtures,  and  other 
expenses  paid  for  by  the  landlord,  form  strictly  a  part  of  the  stock 
of  the  farm,  and  must  have  been  furnished  by  the  tenant,  if  not 
provided  by  the  landlord.  Rent  is  the  sum  paid  to  the  landlord 
for  the  use  of  the  land,  and  for  the  use  of  the  land  only.  The 
further  sum  that  is  paid  to  him  under  the  name  of  rent,  is  for  the 
use  of  the  buildings,  &c.,  and  is  really  the  profits  of  the  landlord’s 
stock.  In  taxing  rent,  as  no  distinction  would  be  made  between 
that  part  paid  for  the  use  of  the  land,  and  that  paid  for  the  use  of 
the  landlord’s  stock,  a  portion  of  the  tax  would  fall  on  the  land¬ 
lord’s  profits,  and  would,  therefore,  discourage  cultivation,  unless 
the  price  of  raw  produce  rose.  On  that  land,  for  the  use  of  which 
no  rent  was  paid,  a  compensation  under  that  name  might  be  given 
to  the  landlord  for  the  use  of  his  buildings.  These  buildings  would 
not  be  erected,  nor  would  raw  produce  be  grown  on  such  land,  till 


TAXES  ON  RENT. 


103 


the  price  at  which  it  sold  would  not  only  pay  for  all  the  usual 
outgoings,  but  also  this  additional  one  of‘  the  tax.  This  part  of  the 
tax  does  not  fall  on  the  landlord,  nor  on  the  farmer,  but  on  the 
consumer  of  raw  produce. 

There  can  be  little  doubt  but  that  if  a  tax  were  laid  on  rent, 
landlords  would  soon  find  a  way  to  discriminate  between  that 
which  is  paid  to  them  for  the  use  of  the  land,  and  that  which  is 
paid  for  the  use  of  the  buildings,  and  the  improvements  which  are 
made  by  the  landlord’s  stock.  The  latter  would  either  be  called 
the  rent  of  house  and  buildings,  or  on  all  new  land  taken  into 
cultivation,  such  buildings  would  be  erected,  and  improvements 
would  be  made  by  the  tenant,  and  not  by  the  landlord.  The 
landlord’s  capital  might  indeed  be  really  employed  for  that  pur¬ 
pose;  it  might  be  nominally  expended  by  the  tenant,  the  landlord 
furnishing  him  with  the  means,  either  in  the  shape  of  a  loan,  or  in 
the  purchase  of  an  annuity  for  the  duration  of  the  lease.  Whether 
distinguished  or  not,  there  is  a  real  difference  between  the  nature 
of  the  compensations  which  the  landlord  receives  for  these  different 
objects :  and  it  is  quite  certain,  that  a  tax  on  the  real  rent  of  land 
falls  wholly  on  the  landlord,  but  that  a  tax  on  that  remuneration 
which  the  landlord  receives  for  the  use  of  his  stock  expended  on 
the  farm,  falls,  in  a  progressive  country,  on  the  consumer  of  raw 
produce.  If  a  tax  were  laid  on  rent,  and  no  means  of  separating 
the  remuneration  now  paid  by  the  tenant  to  the  landlord  under  the 
name  of  rent,  were  adopted,  the  tax,  as  far  as  it  regarded  the  rent 
on  the  buildings  and  other  fixtures,  would  never  fall  for  any  length 
of  time  on  the  landlord,  but  on  the  consumer.  The  capital  ex¬ 
pended  on  these  buildings,  &c.,  must  afford  the  usual  profit  of 
stock;  but  it  would  cease  to  afford  this  profit  on  the  land  last 
cultivated,  if  the  expenses  of  those  buildings,  &c.,  did  not  fall  on 
the  tenant ;  and  if  they  did,  the  tenant  would  then  cease  to  make 
his  usual  profits  of  stock,  unless  he  could  charge  them  on  the  con¬ 
sumer. 


I  104  ] 


CHAPTER  XI. 


TITHES. 

Tithes  are  a  tax  on  the  gross  produce  of  the  land,  and,  like  taxes 
on  raw  produce,  fall  wholly  on  the  consumer.  They  differ  from  a 
tax  on  rent,  inasmuch  as  they  affect  land  which  such  a  tax  would 
not  reach ;  and  raise  the  price  of  raw  produce,  which  that  tax 
would  not  alter.  Lands  of  the  worst  quality,  as  well  as  of  the  best, 
pay  tithes,  and  exactly  in  proportion  to  the  quantity  of  produce 
obtained  from  them  ;  tithes  are  therefore  an  equal  tax. 

If  land  of  the  last  quality,  or  that  which  pays  no  rent,  and  which 
regulates  the  price  of  corn,  yield  a  sufficient  quantity  to  give  the 
farmer  the  usual  profits  of  stock,  when  the  price  of  wheat  is  4 1.  per 
quarter,  the  price  must  rise  to  41.  8s.  before  the  same  profits  can  be 
obtained  after  the  tithes  are  imposed,  because  for  every  quarter  of 
wheat  the  cultivator  must  pay  eight  shillings  to  the  church,  and  if 
he  does  not  obtain  the  same  profits,  there  is  no  reason  why  he 
should  not  quit  his  employment,  when  he  can  get  them  in  other 
trades. 

The  only  difference  between  tithes  and  taxes  on  raw  produce  is, 
that  one  is  a  variable  money  tax,  the  other  a  fixed  money  tax.  In 
a  stationary  state  of  society,  where  there  is  neither  increased  nor 
diminished  facility  of  producing  corn,  they  will  be  precisely  the 
same  in  their  effects ;  for,  in  such  a  state,  corn  will  be  at  an  in¬ 
variable  price,  and  the  tax  will  therefore  be  also  invariable.  In 
either  a  retrograde  state,  or  in  a  state  in  which  great  improvements 
are  made  in  agriculture,  and  where  consequently  raw  produce  will 
fall  in  value  comparatively  with  other  things,  tithes  will  be  a  lighter 
tax  than  a  permanent  money  tax ;  for  if  the  price  of  corn  should 
fall  from  41.  to  3/.,  the  tax  would  fall  from  eight  to  six  shillings. 
In  a  progressive  state  of  society,  yet  without  any  marked  improve¬ 
ments  in  agriculture,  the  price  of  corn  would  rise,  and  tithes  would 
be  a  heavier  tax  than  a  permanent  money  tax.  If  corn  rose  from 
41.  to  51.,  the  tithes  on  the  same  land  would  advance  from  eight  to 
ten  shillings. 

Neither  tithes  nor  a  money  tax  will  affect  the  money  rent  of 
landlords,  but  both  will  materially  affect  corn  rents.  We  have  al¬ 
ready  observed  how  a  money  tax  operates  on  corn  rents,  and  it  is 
equally  evident  that  a  similar  effect  would  be  produced  by  tithes. 
If  the  lands,  No.  1,  2,  3,  respectively  produced  180,  170,  and  1(>0 


TITIIES. 


105 


quarters,  the  rents  might  be  on  No.  1,  twenty  quarters,  and  on  No. 
2,  ten  quarters ;  but  they  would  no  longer  preserve  that  proportion 
after  the  payment  of  tithes  :  for  if  a  tenth  be  taken  from  each,  the 
remaining  produce  will  be  162,  153,  144,  and  consequently  the  corn 
rent  of  No.  1  will  be  reduced  to  eighteen,  and  that  of  No.  2  to  nine 
quarters.  But  the  price  of  corn  would  rise  from  41.  to  41.  8s.  10|d. ; 
for  144  quarters  are  to  41.  as  160  quarters  to  41.  8s.  10§d.,  and  con¬ 
sequently  the  money  rent  would  continue  unaltered ;  for  on  No  1 
it  would  be  80 1.*  and  on  No.  2,  40Z.f 

The  chief  objection  against  tithes  is,  that  they  are  not  a  permanent 
and  fixed  tax,  but  increase  in  value,  in  proportion  as  the  difficulty 
of  producing  corn  increases.  If  those  difficulties  should  make  the 
price  of  corn  4 1.,  the  tax  is  8s. ;  if  they  should  increase  it  to  5 1.,  the 
tax  is  10s.  ;  and  at  til.  it  is  12s.  They  not  only  rise  in  value,  but 
they  increase  in  amount :  thus,  when  No.  1  was  cultivated,  the  tax 
was  only  levied  on  180  quarters  ;  when  No.  2  was  cultivated,  it  was 
levied  on  180-]-  170,  or  350  quarters;  and  when  No.  3  was  culti¬ 
vated,  on  180 -f- 170  +  160  =  510  quarters.  Not  only  is  the 
amount  of  tax  increased  from  100,000  quarters  to  200,000  quarters, 
when  the  produce  is  increased  from  one  to  two  millions  of  quarters ; 
but,  owing  to  the  increased  labour  necessary  to  produce  the  second 
million,  the  relative  value  of  raw  produce  is  so  advanced,  that  the 
200,000  quarters  may  be,  though  only  twice  in  quantity,  yet  in 
value  three  times  that  of  the  100,000  quarters  which  were  paid 
before. 

Jf  an  equal  value  were  raised  for  the  church  by  any  other  means, 
increasing  in  the  same  manner  as  tithes  increase,  proportionably 
with  the  difficulty  of  cultivation,  the  effect  would  be  the  same  :  and 
therefore  it  is  a  mistake  to  suppose  that,  because  they  are  raised  on 
the  land,  they  discourage  cultivation  more  than  an  equal  amount 
would  do  if  raised  in  any  other  manner.  The  church  would  in  both 
cases  be  constantly  obtaining  an  increased  portion  of  the  net  pro¬ 
duce  of  the  land  and  labour  of  the  country.  In  an  improving  state 
.of  society,  the  net  produce  of  land  is  always  diminishing  in  propor¬ 
tion  to  its  gross  produce  ;  but  it  is  from  the  net  income  of  a  country 
that  all  taxes  are  ultimately  paid,  either  in  a  progressive  or  in  a 
stationary  country.  A  tax  increasing  with  the  gross  income,  and 
falling  on  the  net  income,  must  necessarily  be  a  very  burdensome, 
and  a  very  intolerable  tax.  Tithes  are  a  tenth  of  the  gross,  and  not 
of  the  net  produce  of  the  land,  and  therefore  as  society  improves 
in  wealth,  they  must,  though  the  same  proportion  of  the  gross  pro¬ 
duce,  become  a  larger  and  larger  proportion  of  the  net  produce. 

Tithes,  however,  may  be  considered  as  injurious  to  landlords, 
inasmuch  as  they  act  as  a  bounty  on  importation,  by  taxing  the 
growth  of  home  corn,  while  the  importation  of  foreign  corn  remains 
unfettered.  And  if,  in  order  to  relieve  the  landlords  from  the  effects 


18  (Quarters  at  4/.  Ss.  ICra. 


+  .t  Quarters  at  4/.  3s.  lOScl. 


106 


TlTIIES. 


of  the  diminished  demand  for  land,  which  such  a  bounty  must  en¬ 
courage,  imported  corn  were  also  taxed,  in  an  equal  degree  with 
corn  grown  at  home,  and  the  produce  paid  to  the  State,  no  measure 
could  be  more  fair  and  equitable  ;  since  whatever  were  paid  to  the 
State  by  this  tax,  would  go  to  diminish  the  other  taxes  which  the 
expenses  of  Government  make  necessary  ;  but  if  such  a  tax  were 
devoted  only  to  increase  the  fund  paid  to  the  church,  it  might  in¬ 
deed  on  the  whole  increase  the  general  mass  of  production,  but  It 
would  diminish  the  portion  of  that  mass  allotted  to  the  productive 
classes. 

If  the  trade  of  cloth  were  left  perfectly  free,  our  manufacturers 
might  be  able  to  sell  cloth  cheaper  than  we  could  import  it.  If  a 
tax  were  laid  on  the  home  manufacturer,  and  noton  the  importer 
of  cloth,  capital  might  be  injuriously  driven  from  the  manufacture 
of  cloth  to  the  manufacture  of  some  other  commodity,  as  cloth 
might  then  be  imported  cheaper  than  it  could  be  made  at  home. 
If  imported,  cloth  should  also  be  taxed,  cloth  would  again  be  manu¬ 
factured  at  home.  The  consumer  first  bought  cloth  at  home, 
because  it  was  cheaper  than  foreign  cloth  ;  he  then  bought  foreign 
cloth,  because  it  was  cheaper  untaxed  than  home  cloth  taxed  :  he 
lastly  bought  it  again  at  home,  because  it  was  cheaper  when  both 
home  and  foreign  cloth  were  taxed.  It  is  in  the  last  case  that  he 
pays  the  greatest  price  for  his  cloth  ;  but  all  his  additional  payment 
is  gained  by  the  State.  In  the  second  case,  he  pays  more  than  in 
the  first,  but  all  he  pays  in  addition  is  not  received  by  the  State, 
it  is  an  increased  price  caused  by  difficulty  of  production,  which  is 
incurred,  because  the  easiest  means  of  production  are  .taken  away 
from  us,  by  being  fettered  with  a  tax. 


1  10?  J 


CHAPTER  XII. 


LAND-TAX. 


A  land-tax,  levied  in  proportion  to  the  rent  of  land,  and  vary¬ 
ing  with  every  variation  of  rent,  is  in  effect  a  tax  on  rent  ;  and  as 
such  a  tax  will  not  apply  to  that  land  which  yields  no  rent,  nor  to 
the  produce  of  that  capital  which  is  employed  on  the  land  with  a 
view  to  profit  merely,  and  which  never  pays  rent ;  it  will  not  in 
any  way  affect  the  price  of  raw  produce,  but  w  ill  fall  w  holly  on  the 
landlords.  In  no  respect  would  such  a  tax  differ  from  a  tax  on 
rent.  Rut  if  a  land-tax  be  imposed  on  all  cultivated  land,  however 
moderate  that  tax  may  be,  it  will  be  a  tax  on  produce,  and  will 
therefore  raise  the  price  of  produce.  If  No.  3  be  the  land  last  cul¬ 
tivated,  although  it  should  pay  no  rent,  it  cannot,  after  the  tax,  be 
cultivated,  and  afford  the  general  rate  of  profit,  unless  the  price  of 
produce  rise  to  meet  the  tax.  Either  capital  w  ill  be  withheld  from 
that  employment  until  the  price  of  corn  shall  have  risen,  in  conse¬ 
quence  of  demand,  sufficiently  to  afford  the  usual  profit ;  or  if 
already  employed  on  such  land,  it  will  quit  it,  to  seek  a  more 
advantageous  employment.  The  tax  cannot  be  removed  to  the 
landlord,  for  by  the  supposition  he  receives  no  rent.  Such  a  tax 
may  be  proportioned  to  the  quality  of  the  land  and  the  abundance 
of  its  produce,  and  then  it  differs  in  no  respect  from  tithes;  or  it 
may  be  a  fixed  tax  per  acre  on  all  land  cultivated,  whatever  its 
quality  may  be. 

A  land-tax  of  this  latter  description  would  be  a  very  unequal 
tax,  and  would  be  contrary  to  one  of  the  four  maxims  with  regard 
to  taxes  in  general,  to  which,  according  to  Adam  Smith,  all  taxes 
should  conform.  The  four  maxims  are  as  follow : — 

1.  “  The  subjects  of  every  state  ought  to  contribute  towards  the 
support  of  the  government,  as  nearly  as  possible  in  proportion 
to  their  respective  abilities. 

2.  “  The  tax  which  each  individual  is  bound  to  pay  ought  to  be 
certain,  and  not  arbitrary. 

3.  “  Every  tax  ought  to  be  levied  at  the  time,  or  in  the  manner  in 
which  it  is  most  likely  to  be  convenient  for  the  contributor  to 
pay  it. 


108 


LAND-TAX. 


4.  “  Every  tax  ought  to  be  so  contrived  as  both  to  take  out  and 
to  keep  out  of  the  pockets  of  the  people  as  little  as  possible, 
over  and  above  what  it  brings  into  the  public  treasury  of  the 
State.” 

An  equal  land-tax,  imposed  indiscriminately  and  without  any 
regard  to  the  distinction  of  its  quality,  on  all  land  cultivated,  will 
raise  the  price  of  corn  in  proportion  to  the  tax  paid  by  the  culti¬ 
vator  of  the  land  of  the  worst  quality.  Lands  of  different  quality, 
with  the  employment  of  the  same  capital,  will  yield  very  different 
quantities  of  raw  produce.  If  on  the  land  which  yields  a  thousand 
quarters  of  corn  with  a  given  capital,  a  tax  of  100Z.  be  laid,  corn 
will  rise  2s.  per  quarter  to  compensate  the  farmer  for  the  tax.  But 
with  the  same  capital  on  land  of  a  better  quality,  2000  quarters 
may  be  produced,  which  at  2s.  a  quarter  advance,  would  give  200Z.; 
the  tax,  however,  bearing  equally  on  both  lands,  will  be  100Z.  on 
the  better  as  w7ell  as  on  the  inferior,  and  consequently  the  consumer 
of  corn  will  be  taxed,  not  only  to  pay  the  exigencies  of  the  State, 
but  also  to  give  to  the  cultivator  of  the  better  land  100Z.  per  annum 
during  the  period  of  his  lease,  and  afterwards  to  raise  the  rent  of 
the  landlord  to  that  amount.  A  tax  of  this  description,  then,  would 
be  contrary  to  the  fourth  maxim  of  Adam  Smith, — it  would  take 
out  and  keep  out  of  the  pockets  of  the  people  more  than  what  it 
brought  into  the  treasury  of  the  State.  The  taille  in  France,  before 
the  Revolution,  was  a  tax  of  this  description  ;  those  lands  only  were 
taxed  which  were  held  by  an  ignoble  tenure,  the  price  of  raw  pro¬ 
duce  rose  in  proportion  to  the  tax,  and  therefore  they  whose  lands 
were  not  taxed  were  benefited  by  the  increase  of  their  rent.  Taxes 
on  raw  produce,  as  well  as  tithes,  are  free  from  this  objection  :  they 
raise  the  price  of  raw  produce,  but  they  take  from  each  quality  of 
land  a  contribution  in  proportion  to  its  actual  produce,  and  not  in 
proportion  to  the  produce  of  that  which  is  the  least  productive. 

From  the  peculiar  view  which  Adam  Smith  took  of  rent,  from 
his  not  having  observed  that  much  capital  is  expended  in  every 
country,  on  the  land  for  which  no  rent  is  paid,  he  concluded  that 
all  taxes  on  the  land,  wdiether  they  were  laid  on  the  land  itself  in 
the  form  of  land-tax  or  tithes,  or  on  the  produce  of  the  land,  or 
were  taken  from  the  profits  of  the  farmer,  were  all  invariably  paid 
by  the  landlord,  and  that  he  was  in  all  cases  the  real  contributor, 
although  the  tax  wTas,  in  general,  nominally  advanced  by  the  tenant. 
“  Taxes  upon  the  produce  of  the  land,”  he^says,  “are  in  reality 
taxes  upon  the  rent ;  and  though  they  may  be  originally  advanced 
by  the  farmer,  are  finally  paid  by  the  landlord.  \Yhen  a  certain 
portion  of  the  produce  is  to  be  paid  away  for  a  tax,  the  farmer 
computes  as  well  as  he  can,  what  the  value  of  this  portion  is,  one 
year  with  another,  likely  to  amount  to,  and  he  makes  a  proportion- 
able  abatement  in  the  rent  which  he  agrees  to  pay  to  the  landlord. 
There  is  no  farmer  who  does  not  compute  beforehand  what  the 


LAND  TAX. 


109 


cliurch-tithe,  which  is  a  land-tax  of  this  kind  is,  one  year  with 
another,  likely  to  amount  to.”  It  is  undoubtedly  true,  that  the 
farmer  does  calculate  his  probable  outgoings  of  all  descriptions, 
when  agreeing  with  his  landlord  for  the  rent  of  his  farm  ;  and  if, 
for  the  tithe  paid  to  the  church,  or  for  the  tax  on  the  produce  of 
the  land,  he  were  not  compensated  by  a  rise  in  the  relative  value 
of  the  produce  of  his  farm,  he  would  naturally  endeavour  to  deduct 
them  from  his  rent.  But  this  is  precisely  the  cpiestion  in  dispute  : 
whether  he  will  eventually  deduct  them  from  his  rent,  or  be  com¬ 
pensated  by  a  higher  price  of  produce.  For  the  reasons  which 
have  been  already  given,  I  cannot  have  the  least  doubt  but  that 
they  would  raise  the  price  of  produce,  and  consequently  that  Adam 
Smith  has  taken  an  incorrect  view  of  this  important  question. 

Dr  Smith’s  view  of  this  subject  is  probably  the  reason  why  lie 
has  described  “the  tithe,  and  every  other  land-tax  of  this  kind, 
under  the  appearance  of  perfect  equality,  as  very  unequal  taxes  ;  a 
certain  portion  of  the  produce  being  in  different  situations,  equiva¬ 
lent  to  a  very  different  portion  of  the  rent.”  I  have  endeavoured 
to  show  that  such  taxes  do  not  fall  with  unequal  weight  on  the 
different  classes  of  farmers  or  landlords,  as  they  are  both  compen¬ 
sated  by  the  rise  of  raw  produce,  and  only  contribute  to  the  tax  in 
proportion  as  they  are  consumers  of  raw  produce.  Inasmuch  in¬ 
deed  as  wages,  and  through  wages,  the  rate  of  profits  are  affected, 
landlords,  instead  of  contributing  their  full  share  to  such  a  tax,  are 
the  class  peculiarly  exempted.  It  is  the  profits  of  stock,  from 
which  that  portion  of  the  tax  is  derived  which  falls  on  those 
labourers,  who,  from  the  insufficiency  of  their  funds,  are  incapable 
of  paying  taxes  ;  this  portion  is  exclusively  borne  by  all  those 
whose  income  is  derived  from  the  employment  of  stock,  and  there¬ 
fore  it  in  no  degree  affects  landlords. 

It  is  not  to  be  inferred  from  this  view  of  tithes,  and  taxes  on  the 
land  and  its  produce,  that  they  do  not  discourage  cultivation. 
Every  thing  which  raises  the  exchangeable  value  of  commodities 
of  any  kind,  which  are  in  very  general  demand,  tends  to  discourage 
both  cultivation  and  production  ;  but  this  is  an  evil  inseparable  from 
all  taxation,  and  is  not  confined  to  the  particular  taxes  of  which  we 
are  now  speaking. 

This  may  be  considered,  indeed,  as  the  unavoidable  disadvantage 
attending  all  taxes  received  and  expended  by  the  State.  Every 
new  tax  becomes  a  new  charge  on  production,  and  raises  natural 
price.  A  portion  of  the  labour  of  the  country  which  was  before  at 
the  disposal  of  the  contributor  to  the  tax,  is  placed  at  the  disposal 
of  the  State,  and  cannot  therefore  be  employed  productively.  This 
portion  may  become  so  large,  that  sufficient  surplus  produce  may 
not  be  left  to  stimulate  the  exertions  of  those  who  usually  augment 
by  their  savings  the  capital  of  the  State.  Taxation  has  happily 
never  yet  in  any  free  country  been  carried  so  far  as  constantly  from 
year  to  year  to  diminish  its  capital.  Such  a  state  of  taxation  could 


110 


land-tax. 


not  be  long  endured  ;  or  if  endured,  it  would  be  constantly  absorb¬ 
ing  so  much  of  the  annual  produce  of  the  country  as  to  occasion 
the  most  extensive  scene  of  misery,  famine,  and  depopulation. 

“  A  land-tax,”  says  Adam  Smith,  “  which,  like  that  of  Great 
Britain,  is  assessed  upon  each  district  according  to  a  certain  in¬ 
variable  canon,  though  it  should  be  equal  at  the  time  of  its  first 
establishment,  necessarily  becomes  unequal  in  process  of  time, 
according  to  the  unequal  degrees  of  improvement  or  neglect  in  the 
cultivation  of  the  different  parts  of  the  country.  In  England  the 
valuation  according  to  which  the  different  counties  and  parishes 
were  assessed  to  the  land-tax  by  the  4th,  William  and]  Mary,  was 
very  unequal,  even  at  its  first  establishment.  This  tax,  therefore, 
so  far  offends  against  the  first  of  the  four  maxims  above  mentioned. 
It  is  perfectly  agreeable  to  the  other  three.  It  is  perfectly  certain. 
The  time  of  payment  for  the  tax  being  the  same  as  that  for  the 
rent,  is  as  convenient  as  it  can  be  to  the  contributor.  Though  the 
landlord  is  in  all  cases  the  real  contributor,  the  tax  is  commonly 
advanced  by  the  tenant,  to  whom  the  landlord  is  obliged  to  allow  it 
in  the  payment  of  the  rent.” 

If  the  tax  be  shifted  by  the  tenant  not  on  the  landlord  but  on  the 
consumer,  then  if  it  be  not  unequal  at  first,  it  can  never  become  so ; 
for  the  price  of  produce  has  been  at  once  raised  in  proportion  to  the 
tax,  and  will  afterwards  vary  no  more  on  that  account.  It  may 
offend,  if  unequal,  as  I  have  attempted  to  show  that  it  will,  against 
the  fourth  maxim  above  mentioned,  but  it  will  not  offend  against 
the  first.  It  may  take  more  out  of  the  pockets  of  the  people  than 
it  brings  into  the  public  treasury  of  the  State,  but  it  will  not  fall 
unequally  on  any  particular  class  of  contributors.  M.  Sav  appears 
to  me  to  have  mistaken  the  nature  and  effects  of  the  English  land- 
tax,  when  he  says,  “  Many  persons  attribute  to  this  fixed  valuation, 
the  great  prosperity  of  English  agriculture.  That  it  has  very  much 
contributed  to  it  there  can  be  no  doubt.  But  what  should  we  say  to 
a  Government,  which,  addressing  itself  to  a  small  trader,  should 
hold  this  language  :  1  With  a  small  capital  you  are  carrying  on  a 
limited  trade,  and  your  direct  contribution  is  in  consequence  very 
small.  Borrow  and  accumulate  capital ;  extend  your  trade,  so  that 
it  may  procure  you  immense  profits  ;  yet  you  shall  never  pay  a 
greater  contribution.  Moreover,  when  your  successors  shall  inherit 
your  profits,  and  shall  have  further  increased  them,  they  shall  not 
be  valued  higher  to  them  than  they  are  to  you  ;  and  your  successors 
shall  not  bear  a  greater  portion  of  the  public  burdens.’ 

“  Without  doubt  this  would  be  a  great  encouragement  given  to 
manufactures  and  trade  ;  but  would  it  be  just  ?  Could  not  their 
advancement  he  obtained  at  any  other  price  ?  In  England  itself, 
has  not  manufacturing  and  commercial  industry  made  even  greater 
progress,  since  the  same  period,  without  being  distinguished  with 
so  much  partiality  ?  A  landlord  by  his  assiduity,  economy,  and  skill, 
increases  his  annual  revenue  by  5000  francs.  If  the  State  claim  of 


LAND-TAX. 


Ill 


him  the  fifth  part  of  his  augmented  income,  will  there  not  remain 
4000  francs  of  increase  to  stimulate  his  further  exertions?” 

M.  Say  supposes,  “  A  landlord  by  his  assiduity,  economy,  and 
skill,  to  increase  his  annual  revenue  by  fiOOO  francs;”  but  a  land¬ 
lord  has  no  means  of  employing  his  assiduity,  economy,  and  skill 
on  his  land,  unless  he  farms  it  himself;  and  then  it  is  in  quality  of 
capitalist  and  farmer  that  he  makes  the  improvement,  and  not  in 
quality  of  landlord.  It  is  not  conceivable  that  he  could  so  augment 
the  produce  of  his  farm  by  any  peculiar  skill  on  his  part,  without 
first  increasing  the  quantity  of  capital  employed  upon  it.  If  he 
increased  the  capital,  his  larger  revenue  might  bear  the  same  pro¬ 
portion  to  his  increased  capital,  as  the  revenue  of  all  other  farmers 
to  their  capitals. 

If  M.  Say’s  suggestion  were  followed,  and  the  State  were  to 
claim  the  fifth  part  of  the  augmented  income  of  the  farmer,  it  would 
be  a  partial  tax  on  farmers,  acting  on  their  profits,  and  not  affecting 
the  profits  of  those  in  other  employments.  The  tax  would  be  paid 
by  all  lands,  by  those  which  yielded  scantily  as  well  as  by  those 
which  yielded  abundantly  ;  and  on  some  lands  there  could  be  no 
compensation  for  it  by  deduction  from  rent,  for  no  rent  is  paid.  A 
partial  tax  on  profits  never  falls  on  the  trade  on  which  it  is  laid,  for 
the  trader  will  either  quit  his  employment,  or  remunerate  himself 
for  the  tax.  Now,  those  who  pay  no  rent  could  be  recompensed 
only  by  a  rise  in  the  price  of  produce,  and  thus  would  M.  Say’s 
proposed  tax  fall  on  the  consumer,  and  not  either  on  the  landlord 
or  farmer. 

If  the  proposed  tax  were  increased  in  proportion  to  the  increased 
quantity  or  value  of  the  gross  produce  obtained  from  the  land,  it 
would  differ  in  nothing  from  tithes,  and  would  equally  be  trans¬ 
ferred  to  the  consumer.  Whether  then  it  fell  on  the  gross  or  on  the 
net  produce  of  land,  it  would  be  equally  a  tax  on  consumption, 
and  would  only  affect  the  landlord  and  farmer  in  the  same  way  as 
other  taxes  on  raw  produce. 

If  no  tax  whatever  had  been  laid  on  the  land,  and  the.  same  sum 
had  been  raised  by  any  other  means,  agriculture  would  have- 
flourished  at  least  as  well  as  it  has  done  ;  for  it  is  impossible  that 
any  tax  on  land  can  be  an  encouragement  to  agriculture  ;  a  moderate 
tax  may  not,  and  probably  does  not,  greatly  prevent,  but  it  cannot 
encourage  production.  The  English  Government  has  held  no  such 
language  as  M.  Say  has  supposed.  It  did  not  promise  to  exempt 
the  agricultural  class  and  their  successors  from  all  future  taxation, 
and  to  raise  the  further  supplies  which  the  State  might  require, 
from  the  other  classes  of  society  ;  it  said  only,  “  in  this  mode  we 
will  no  further  burthen  the  land  ;  but  we  retain  to  ourselves  the 
most  perfect  liberty  of  making  you  pay,  under  some  other  form, 
your  full  quota  to  the  future  exigencies  of  the  State.” 

Speaking  of  taxes  in  kind,  or  a  tax  of  a  certain  proportion  of  the 
produce,  which  is  precisely  the  same  as  tithes,  M.  Say  says,  “This 


112 


LAND-TAX. 


mode  of  taxation  appears  to  be  the  most  equitable ;  there  is,  how¬ 
ever,  none  which  is  less  so :  it  totally  leaves  out  of  consideration 
the  advances  made  by  the  producer;  it  is  proportioned  to  the  gross, 
and  not  to  the  net  revenue.  Two  agriculturists  cultivate  different 
kinds  of  raw  produce  :  one  cultivates  corn  on  middling  land,  his 
expenses  amounting  annually  on  an  average  to  8000  francs ;  the 
raw  produce  from  his  lands  sells  for  12,000  francs;  he  has  then  a 
net  revenue  of  4000  francs. 

“  His  neighbour  has  pasture  or  wood  land,  which  brings  in  every 
year  a  like  sum  of  12,000  francs,  but  his  expenses  amount  only  to 
2000  francs.  He  has  therefore  on  an  average  a  net  revenue  of 
10,000  francs. 

“A  law  ordains  that  a  twelfth  of  the  produce  of  all  the  fruits  of 
the  earth  be  levied  in  kind,  whatever  they  may  be.  From  the  first 
is  taken,  in  consequence  of  this  law,  corn  of  the  value  of  1000 
francs ;  and  from  the  second,  hay,  cattle,  or  wood,  of  the  same 
value  of  1000  francs.  What  has  happened  ?  From  the  one,  a 
quarter  of  his  net  income,  4000  francs,  has  been  taken ;  from  the 
other,  whose  income  was  10,000  francs,  a  tenth  only  has  been  taken. 
Income  is  the  net  profit  which  remains  after  replacing  the  capital 
exactly  in  its  former  state.  Has  a  merchant  an  income  equal  to  all 
the  sales  which  he  makes  in  the  course  of  a  year?  certainly  not; 
his  income  only  amounts  to  the  excess  of  his  sales  above  his  ad¬ 
vances,  and  it  is  on  this  excess  only  that  taxes  on  income  should 
fall.” 

M.  Say’s  error  in  the  above  passage  lies  in  supposing  that  because 
the  value  of  the  produce  of  one  of  these  two  farms,  after  reinstating 
the  capital,  is  greater  than  the  value  of  the  produce  of  the  other, 
fin  that  account  the  net  income  of  the  cultivators  will  differ  by  the 
same  amount.  The  net  income  of  the  landlords  and  tenants  together 
of  the  wood  land,  may  be  much  greater  than  the  net  income  of  the 
landlords  and  tenants  of  the  corn  land  ;  but  it  is  on  account  of  the 
difference  of  rent,  and  not  on  account  of  the  difference  in  the  rate 
of  profit.  M.  Say  has  wholly  omitted  the  consideration  of  the 
different  amount  of  rent,  which  these  cultivators  would  have  to  pay. 
There  cannot  be  two  rates  of  profit  in  the  same  employment,  and 
therefore  when  the  value  of  produce  is  in  different  proportions  to 
capital,  it  is  the  rent  which  will  differ,  and  not  the  profit.  Upon 
what  pretence  would  one  man,  with  a  capital  of  2000  francs,  be 
allowed  to  obtain  a  net  profit  of  10,000  francs  from  its  employment, 
whilst  another,  with  a  capital  of  8000  francs,  would  only  obtain 
4000  francs  ?  Let  M.  Say  make  a  due  allowance  for  rent ;  let  him 
further  allow  for  the  effect  which  such  a  tax  would  have  on  the 
prices  of  these  different  kinds  of  raw  produce,  and  he  will  then  per¬ 
ceive  that  it  is  not  an  unequal  tax,  and,  further,  that  the  producers 
themselves  will  no  otherwise  contribute  to  it,  than  any  other  class 
of  consumers. 


r  U3 


i 

* 


CHAPTER  XIII. 


TAXES  OX  GOLD. 

Tiie  rise  in  the  price  of  commodities,  in  consequence  of  taxation  or 
of  difficulty  of  production,  will  in  all  cases  ultimately  ensue  ;  but  the 
duration  of  the  interval,  before  the  market  price  will  conform  to  the 
natural  price,  must  depend  on  the  nature  of  the  commodity,  and  on 
the  facility  with  which  it  can  be  reduced  in  quantity.  If  the  quan¬ 
tity  of  the  commodity  taxed  could  not  be  diminished,  if  the  capital 
of  the  farmer  or  of  the  hatter,  for  instance,  could  not  be  withdrawn 
to  other  employments,  it  would  be  of  no  consequence  that  their 
profits  were  reduced  below  the  general  level  by  means  of  a  tax  ; 
unless  the  demand  for  their  commodities  should  increase,  they  would 
never  be  able  to  elevate  the  market  price  of  corn  and  of  hats  up  to 
their  increased  natural  price.  Their  threats  to  leave  their  employ¬ 
ments,  and  remove  their  capitals  to  more  favoured  trades,  would  be 
treated  as  an  idle  menace  which  could  not  be  carried  into  effect ; 
and  consequently  the  price  would  not  be  raised  by  diminished  pro¬ 
duction.  Commodities,  however,  of  all  descriptions,  can  be  reduced 
in  quantity,  and  capital  can  be  removed  from  trades  which  are  less 
profitable  to  those  which  are  more  so,  but  with  different  degrees  of 
rapidity.  In  proportion  as  the  supply  of  a  particular  commodity  can 
be  more  easily  reduced,  without  inconvenience  to  the  producer,  the 
price  of  it  will  more  quickly  rise  after  the  difficulty  of  its  production 
has  been  increased  by  taxation,  or  bv  any  other  means.  Corn  being 
a  commodity  indispensably  necessary  to  every  one,  little  effect  will 
be  produced  on  the  demand  for  it  in  consequence  of  a  tax,  and 
therefore  the  supply  would  not  probably  be  long  excessive,  even  if 
the  producers  had  great  difficulty  in  removing  their  capitals  from 
the  land.  For  this  reason,  the  price  of  corn  will  speedily  be  raised 
by  taxation,  and  the  farmer  will  be  enabled  to  transfer  the  tax  from 
himself  to  the  consumer. 

If  the  mines  which  supply  us  with  gold  were  in  this  country,  and 
if  gold  were  taxed,  it  could  not  rise  in  relative  value  to  other  things, 
till  its  quantity  were  reduced.  This  would  be  more  particularly 
the  case,  if  gold  were  used  exclusively  for  money.  It  is  true  that 
the  least  productive  mines,  those  which  paid  no  rent,  could  no 
longer  be  worked,  as  they  could  not  afford  the  general  rate  of  profits 
till  the  relative  value  of  gold  rose,  by  a  sum  equal  to  the  tax.  The 

ll 


114 


TAXES  ON  GOLD. 


quantity  of  gold,  and,  therefore,  tne  quantity  of  money  would  be 
slowly  reduced :  it  would  he  a  little  diminished  in  one  year,  a  little 
more  in  another,  and  finally  its  value  would  be  raised  in  proportion 
to  the  tax ;  but,  in  the  interval,  the  proprietors  or  holders,  as  they 
would  pay  the  tax,  would  be  the  sufferers,  and  not  those  who  used 
money.  If'  out  of  every  1000  quarters  of  wheat  in  the  country, 
and  every  1000  produced  in  future,  Government  should  exact  100 
quarters  as  a  tax,  the  remaining  000  quarters  would  exchange  for 
the  same  quantity  of  other  commodities  that  1000  did  before  ;  but 
if  the  same  thing  took  place  with  respect  to  gold,  if  of  every  1000/. 
money  now  in  the  country,  or  in  future  to  be  brought  into  it,  Go¬ 
vernment  could  exact  100/.  as  a  tax,  the  remaining  000/.  would 
purchase  very  little  more  than  900/.  purchased  before.  The  tax 
would  fall  upon  him,  whose  property  consisted  of  money,  and  would 
continue  to  do  so  till  its  quantity  were  reduced  in  proportion  to  the 
increased  cost  of  its  production  caused  by  the  tax. 

This,  perhaps,  would  be  more  particularly  the  case  with  respect 
to  a  metal  used  for  money,  than  any  other  commodity  ;  because 
the  demand  for  money  is  not  for  a  definite  quantity,  as  is  the  de¬ 
mand  for  clothes,  or  for  food.  The  demand  for  money  is  regulated 
entirely  by  its  value,  and  its  value  by  its  quantity.  If  gold  were 
of  double  the  value,  half  the  quantity  would  perform  the  same 
functions  in  circulation,  and  if  it  were  of  half  the  value,  double  the 
quantity  would  be  required.  If  the  market  value  of  corn  be  in¬ 
creased  one-tenth  by  taxation,  or  by  ditficulty  of  production,  it  is 
doubtful  w  hether  any  effect  whatever  wrould  be  produced  on  the 
quantity  consumed,  because  every  man’s  want  is  for  a  definite 
quantity,  and,  therefore,  if  he  has  the  means  of  purchasing,  he  will 
continue  to  consume  as  before :  but  for  money,  the  demand  is 
exactly  proportioned  to  its  value.  No  man  could  consume  twice 
the  quantity  of  corn  which  is  usually  necessary  for  his  support,  but 
every  man  purchasing  and  selling  only  the  same  quantity  of  goods, 
may  be  obliged  to  employ  twice,  thrice,  or  any  number  of  times 
the  same  quantity  of  money. 

The  argument  which  I  have  just  been  using,  applies  only  to  those 
states  of  society  in  which  the  precious  metals  are  used  for  money, 
ar.u  where  paper  credit  is  not  established.  The  metal  gold,  like 
all  other  commodities,  has  its  value  in  the  market  ultimately  regu¬ 
lated  by  the  comparative  facility  or  difficulty  of  producing  it;  and 
although,  from  its  durable  nature,  and  from  the  difficulty  of  re¬ 
ducing  its  quantity,  it  does  not  readily  bend  to  variations  in  its  market 
value,  yet  that  difficulty  is  much  increased  from  the  circumstance 
of  its  being  used  as  money.  If  the  quantity  of  gold  in  the  market 
for  the  purpose  of  commerce  only,  were  10,000  ounces,  and  the 
consumption  in  our  manufactures  were  2000  ounces  annually,  it 
might  be  raised  one-fourth,  or  25  per  pent,  in  its  value,  in  one  year, 
by  withholding  the  annual  supply ;  bitt  if,  in  consequence  of  its 
being  used  as  money,  the  quantity  employed  were  100,000  ounces, 


TAXES  ON  GOLD. 


115 


it  would  not  be  raised  one-fourth  in  value  in  less  than  ten  years. 
As  money  made  of  paper  may  be  readily  reduced  in  quantity,  its 
value,  though  its  standard  -were  gold,  would  be  increased  as  rapidly 
as  that  of  the  metal  itself  would  be  increased,  if  the  metal,  by 
forming  a  very  small  part  of  the  circulation,  had  a  very  slight  con¬ 
nexion  with  money. 

If  gold  were  the  produce  of  one  country  only,  and  it  were  used 
universally  for  money,  a  very  considerable  tax  might  be  imposed  on 
it,  which  would  not  fall  on  any  country,  except  in  proportion  as 
they  used  it  in  manufactures,  and  for  utensils ;  upon  that  portion 
which  was  used  for  money,  though  a  large  tax  might  be  received, 
nobody  would  pay  it.  This  is  a  quality  peculiar  to  money.  All 
other  commodities  of  which  there  exists  a  limited  quantity,  and 
which  cannot  be  increased  by  competition,  are  dependent  for  their 
value  on  the  tastes,  the  caprice,  and  the  power  of  purchasers ;  but 
money  is  a  commodity  which  no  country  has  any  wish  or  necessity 
to  increase  :  no  more  advantage  results  from  using  twenty  millions, 
than  from  using  ten  millions  of  currency.  A  country  might  have 
a  monopoly  of  silk,  or  of  wine,  and  yet  the  prices  of  silks  and  wine 
might  fall,  because  from  caprice  or  fashion,  or  taste,  cloth  and 
brandy  might  be  preferred,  and  substituted  :  the  same  effect  might 
in  a  degree  take  place  with  gold,  as  far  as  its  use  is  confined  to 
manufactures  :  but  while  money  is  the  general  medium  of  exchange, 
the  demand  for  it  is  never  a  matter  of  choice,  but  always  of  neces¬ 
sity  :  you  must  take  it  in  exchange  for  your  goods,  and,  therefore, 
there  are  no  limits  to  the  quantity  which  may  be  forced  on  you  by 
foreign  trade,  if  it  fall  in  value  ;  and  no  reduction  to  which  you 
must  not  submit,  if  it  rise.  You  may,  indeed,  substitute  paper 
money,  but  by  this  you  do  not,  and  cannot  lessen  the  quantity  of 
money,  for  that  is  regulated  by  the  value  of  the  standard  for  which 
it  is  exchangeable  ;  it  is  only  by  the  rise  of  the  price  of  commodi¬ 
ties,  that  you  can  prevent  them  from  being  exported  from  a  country 
where  they  are  purchased  with  little  money,  to  a  country  where 
they  can  be  sold  for  more,  and  this  rise  can  only  be  effected  by  an 
importation  of  metallic  money  from  abroad,  or  by  the  creation  or 
addition  of  paper  money  at  home.  If,  then,  the  King  of  Spain, 
supposing  him  to  be  in  exclusive  jwssession  of  the  mines,  and  gold 
alone  to  be  used  for  money,  were  to  lay  a  considerable  tax  on  gold, 
he  would  very  much  raise  its  natural  value  ;  and  as  its  market 
value  in  Europe  is  ultimately  regulated  by  its  natural  value  in 
Spanish  America,  more  commodities  would  be  given  by  Europe  for 
a  given  quantity  of  gold.  But  the  same  quantity  of  gold  would 
not  be  produced  in  America,  as  its  value  would  only  be  increased 
in  proportion  to  the  diminution  of  quantity  consequent  on  its  in¬ 
creased  cost  of  production.  No  more  goods,  then,  would  be  ob¬ 
tained  in  America,  in  exchange  for  all  their  gold  exported  than 
before;  and  it  may  be  askecl,  where  then  would  be  the  benefit  to 
Spain  and  her  Colonies  ?  The  benefit  would  be  this,  that  if  less 


116 


TAXES  ON  GOLD 


gold  were  produced,  less  capital  Avould  be  employed  in  producing 
it ;  the  same  value  of  goods  from  Europe  would  be  imported  by 
the  employment  of  the  smaller  capital,  that  was  before  obtained 
by  the  employment  of  the  larger ;  and,  therefore,  all  the  produc¬ 
tions  obtained  by  the  employment  of  the  capital  withdrawn 
from  the  mines,  would  be  a  benefit  which  Spain  would  derive  from 
the  imposition  of  the  tax,  and  which  she  could  not  obtain  in  such 
abundance,  or  with  such  certainty,  by  possessing  the  monopoly  of 
any  other  commodity  whatever.  From  such  a  tax,  as  far  as  money 
was  concerned,  the  nations  of  Europe  would  suffer  no  injury  what¬ 
ever  ;  they  would  have  the  same  quantity  of  goods,  and  conse¬ 
quently  the  same  means  of  enjoyment  as  before,  but  these  goods 
would  be  circulated  with  a  less  quantity,  because  a  more  valuable 
money. 

If  in  consequence  of  the  tax,  only  one-tenth  of  the  present 
quantity  of  gold  were  obtained  from  the  mines,  that  tenth  would 
be  of  equal  value  with  the  ten  tenths  now  produced.  But  the 
King  of  Spain  is  not  exclusively  in  possession  of  the  mines  of  the 
precious  metals  ;  and  if  he  were,  his  advantage  from  their  posses¬ 
sion,  and  the  power  of  taxation,  would  be  very  much  reduced  by 
the  limitation  of  demand  and  consumption  in  Europe,  in  conse¬ 
quence  of  the  universal  substitution,  in  a  greater  or  less  degree,  of 
paper  money.  The  agreement  of  the  market  and  natural  prices  of 
all  commodities,  depends  at  all  times  on  the  facility  with  which 
the  supply  can  be  increased  or  diminished.  In  the  case  of  gold, 
houses,  and  labour,  as  well  as  many  other  things,  this  effect  cannot, 
under  some  circumstances,  be  speedily  produced.  But  it  is  dif¬ 
ferent  with  those  commodities  which  are  consumed  and  reproduced 
from  year  to  year,  such  as  hats,  shoes,  corn,  and  cloth  ;  they  may 
be  reduced,  if  necessary,  and  the  interval  cannot  be  long  before  the 
supply  is  contracted  in  proportion  to  the  increased  charge  of  pro¬ 
ducing  them. 

A  tax  on  raw  produce  from  the  surface  of  the  earth,  will,  as  we 
have  seen,  fall  on  the  consumer,  and  will  in  no  way  affect  rent ; 
unless  by  diminishing  the  funds  for  the  maintenance  of  labour,  it 
lowers  wages,  reduces  the  population,  and  diminishes  the  demand 
for  corn.  But  a  tax  on  the  produce  of  gold  mines  must,  by  enhanc¬ 
ing  the  value  of  that  metal,  necessarily  reduce  the  demand  for  it, 
and  must  therefore  necessarily  displace  capital  from  the  employ¬ 
ment  to  which  it  was  applied.  Notwithstanding,  then,  that  Spain 
would  derive  all  the  benefits  which  I  have  stated  from  a  tax  on 
gold,  the  proprietors  of  those  mines  from  which  capital  was  with¬ 
drawn  would  lose  all  their  rent.  This  would  be  a  loss  to  indivi¬ 
duals,  but  not  a  national  loss  ;  rent  being  not  a  creation,  but  merely 
a  transfer  of  wealth  :  the  King  of  Spain,  and  the  proprietors  of  the 
mines  which  continued  to  be  worked,  would  together  receive,  not 
only  all  that  the  liberated  capital  produced,  but  all  that  the  other 
proprietors  lost. 


TAXES  ON  GOLD. 


117 


Suppose  the  mines  of  the  1st,  2d,  and  3d  quality  to  be  worked, 
and  to  produce  respectively  100,  80,  and  70  pounds’  weight  of  gold, 
and  therefore  the  rent  of  No.  1  to  be  thirty  pounds,  and  that  of 
No.  2  ten  pounds.  Suppose,  now,  the  tax  to  he  seventy  pounds  of 
gold  per  annum  on  each  mine  worked  ;  and  consequently  that  No.  1 
alone  could  be  profitably  worked,  it  is  evident  that  all  rent  would 
immediately  disappear.  Before  the  imposition  of  the  tax,  out  of 
the  100  pounds  produced  on  No.  1,  a  rent  was  paid  of  thirty  pounds, 
and  the  worker  of  the  mine  retained  seventy,  a  sum  equal  to  the 
produce  of  the  least  productive  mine.  The  value,  then,  of  what 
remains  to  the  capitalist  of  the  mine  No.  1,  must  be  the  same  as 
before,  or  he  would  not  obtain  the  common  profits  of  stock  ;  and, 
consequently,  after  paying  seventy  out  of  his  100  pounds  for  tax, 
the  value  of  the  remaining  thirty  must  be  as  great  as  the  value  of 
seventy  was  before,  and  therefore  the  value  of  the  whole  hundred 
as  great  as  233  pounds  before.  Its  value  might  be  higher,  but  it 
could  not  be  lower,  or  even  this  mine  would  cease  to  be  worked. 
Being  a  monopolised  commodity,  it  could  exceed  its  natural  value, 
and  then  it  would  pay  a  rent  equal  to  that  excess  ;  but  no  funds 
would  be  employed  in  the  mine,  if  it  were  below  this  value.  In 
return  for  one-third  of  the  labour  and  capital  employed  in  the  mines, 
Spain  would  obtain  as  much  gold  as  would  exchange  for  the  same, 
or  very  nearly  the  same,  quantity  of  commodities  as  before.  She 
would  be  richer  by  the  produce  of  the  two-thirds  liberated  from 
the  mines.  If  the  value  of  the  100  pounds  of  gold  should  be  equal 
to  that  of  the  250  pounds  extracted  before,  the  King  of  Spain’s 
portion,  his  seventy  pounds  would  be  equal  to  175  at  the  former 
value  :  a  small  part  of  the  King’s  tax  only  would  fall  on  his  own  sub¬ 
jects,  the  greater  part  being  obtained  by  the  better  distribution  of 
capital. 

The  account  of  Spain  would  stand  thus  . — 


FORMERLY  PRODUCED. 


Gold,  250  pounds,  of  the  value  of  (suppose)  .  .  .  10,000  yards  of 

cloth. 


NOW  PRODUCED. 

By  the  two  capitalists  who  quitted  the  mines,  the  same  value  as  ) 
140  pounds  of  gold  formerly  exchanged  for  ;  equal  to  .  ) 

By  the  capitalist  who  works  the  mine,  No.  1,  thirty  pounds  of  gold,  > 
increased  in  value,  as  1  to  2i,  and  therefore  now  of  the  value  of  i 
Tax  to  the  king,  seventy  pounds,  increased  also  in  value  as  1  to  2^,) 
and  therefore  now  of  the  value  of  .  .  .  .  j 


5,600  yards  of 
cloth. 

3,000  yards  of 
cloth. 

7,000  yards  of 

-  cloth. 

15,600 


Of  the  7000  received  bv  the  king,  the  people  of  Spain  would  con¬ 
tribute  only  1,400,  and  5,600  would  be  pure  gain,  effected  by  the 
liberated  capital. 

If  the  tax,  instead  of  being  a  fixed  sum  per  mine  worked,  were  a 
certain  portion  of  its  produce,  the  quantity  would  not  be  immedi¬ 
ately  reduced  in  consequence.  If  a  half,  a  fourth,  or  a  third  of  each 
mine  were  taken  for  the  tax,  it  tvould  nevertheless  be  the  interest 


118 


TAXES  ON  GOLD. 


of  the  proprietors  to  make  their  mines  yield  as  abundantly  as  be¬ 
fore  ;  but  if  the  quantity  were  not  reduced,  but  only  a  part  of  it 
transferred  from  the  proprietor  to  the  king,  its  value  would  not  rise  ; 
the  tax  would  fall  on  the  people  of  the  colonies,  and  no  advantage 
would  be  gained.  A  tax  of  this  kind  would  have  the  effect  that 
Adam  Smith  supposes  taxes  on  raw  produce  would  have  on  the 
rent  of  land — it  would  fall  entirely  on  the  rent  of  the  mine.  If 
pushed  a  little  further,  indeed,  the  tax  would  not  only  absorb  the 
whole  rent,  but  would  deprive  the  worker  of  the  mine  of  the  com¬ 
mon  profits  of  stock,  and  he  would  consequently  withdraw  his 
capital  from  the  production  of  gold.  If  still  farther  extended,  the 
rent  of  still  better  mines  would  be  absorbed,  and  capital  would  be 
further  withdrawn  ;  and  thus  the  quantity  would  be  continually 
reduced,  and  its  value  raised,  and  the  same  effects  would  take  place 
as  we  have  already  pointed  out ;  a  part  of  the  tax  would  be  paid 
by  the  people  of  the  Spanish  colonies,  and  the  other  part  would  be 
a  new  creation  of  produce,  by  increasing  the  power  of  the  instru¬ 
ment  used  as  a  medium  of  exchange. 

Taxes  on  gold  are  of  two  kinds,  one  on  the  actual  quantity  of 
gold  in  circulation,  the  other  on  the  quantity  that  is  annually  pro- 
duced  from  the  mines.  Both  have  a  tendency  to  reduce  the  quan¬ 
tity,  and  to  raise  the  value  of  gold  ;  but  by  neither  will  its  value  be 
raised  till  the  quantity  is  reduced,  and  therefore  such  taxes  will  fall 
for  a  time,  until  the  supply  is  diminished,  on  the  proprietors  of 
money,  but  ultimately  that  part  which  will  permanently  fall  on  the 
community,  will  be  paid  by  the  owner  of  the  mine  in  the  reduction 
of  rent,  and  by  the  purchasers  of  that  portion  of  gold,  which  is  used 
as  a  commodity  contributing  to  the  enjoyments  of  mankind,  and  not 
set  apart  exclusively  for  a  circulating  medium. 


[  119  ] 


CHAPTER  XIV. 


TAXES  ON  HOUSES. 

There  are  also  other  commodities  besides  gold  which  cannot  be 
speedily  reduced  in  quantity ;  any  tax  on  which  will  therefore  fall 
on  the  proprietor,  if  the  increase  of  price  should  lessen  the  demand. 

Taxes  on  houses  are  of  this  description  ;  though  laid  on  the  oc¬ 
cupier,  they  will  frequently  fall  by  a  diminution  of  rent  on  the 
landlord.  The  produce  of  the  land  is  consumed  and  reproduced 
from  year  to  year,  and  so  are  many  other  commodities;  as  they 
may  therefore  be  speedily  brought  to  a  level  with  the  demand,  they 
cannot  long  exceed  their  natural  price.  But  as  a  tax  on  houses 
may  be  considered  in  the  light  of  an  additional  rent  paid  by  the 
tenant,  its  tendency  will  be  to  diminish  the  demand  for  houses  of 
the  same  annual  rent,  without  diminishing  their  supply.  Rent  will 
therefore  fall,  and  a  part  of  the  tax  that  will  be  paid  indirectly  by 
the  landlord. 

“  The  rent  of  a  house,”  says  Adam  Smith,  “  may  be  distinguished 
into  two  parts,  of  which  the  one  may  very  properly  be  called  the 
building  rent,  the  other  is  commonly  called  the  ground  rent.  The 
building  rent  is  the  interest  or  profit  of  the  capital  expended  in 
building  the  house.  In  order  to  put  the  trade  of  a  builder  upon  a 
level  with  other  trades,  it  is  necessary  that  this  rent  should  be  suf¬ 
ficient  first  to  pay  the  same  interest  which  he  would  have  got  for 
his  capital,  if  he  had  lent  it  upon  good  security ;  and,  secondly,  to 
keep  the  house  in  constant  repair,  or,  what  comes  to  the  same 
thing,  to  replace  within  a  certain  term  of  years  the  capital  which 
had  been  employed  in  building  it.”  “  If,  in  proportion  to  the  in 
terest  of  money,  the  trade  of  the  builder  affords  at  any  time  a  much 
greater  profit  than  this,  it  will  soon  draw  so  much  capital  from 
other  trades  as  will  reduce  the  profit  to  its  proper  level.  If  it 
affords  at  any  time  much  less  than  this,  other  trades  will  soon  draw 
so  much  capital  from  it  as  will  again  raise  that  profit.  AYhatever 
part  of  the  whole  rent  of  a  house  is  over  and  above  what  is  suffi¬ 
cient  for  affording  this  reasonable  profit,  naturally  goes  to  the 
ground  rent ;  and  where  the  owner  of  the  ground,  and  the  owner 
of  the  building,  are  two  different  persons,  it  is  in  most  cases  com¬ 
pletely  paid  to  the  former.  In  country  houses,  at  a  distance  from 
any  great  town  where  there  is  a  plentiful  choice  of  ground,  the 


120 


TAXES  ON  ROUSES. 


ground  rent  is  scarcely  any  thing,  or  no  more  than  what  the  space 
upon  which  the  house  stands  would  pay  employed  in  agriculture.  In 
country  villas,  in  the  neighbourhood  of  some  great  town,  it  is  some¬ 
times  a  good  deal  higher,  and  the  peculiar  conveniencv,  or  beauty 
of  situation,  is  there  frequently  very  highly  paid  for.  Ground  rents 
are  generally  highest  in  the  capital,  and  in  those  particular  parts  of 
it  where  there  happens  to  be  the  greatest  demand  for  houses,  what¬ 
ever  be  the  reason  for  that  demand,  whether  for  trade  and  business, 
for  pleasure  and  society,  or  for  mere  vanity  and  fashion.”  A  tax 
on  the  rent  of  houses  may  either  fall  on  the  occupier,  on  the  ground 
landlord,  or  on  the  building  landlord.  In  ordinary  cases  it  may  be 
presumed  that  the  whole  tax  would  be  paid,  both  immediately  and 
finally,  by  the  occupier. 

If  the  tax  be  moderate,  and  the  circumstances  of  the  country 
such,  that  it  is  either  stationary  or  advancing,  there  would  be  little 
motive  for  the  occupier  of  a  house  to  content  himself  with  one  of 
a  worse  description.  But  if  the  tax  be  high,  or  any  other  circum¬ 
stances  should  diminish  the  demand  for  houses,  the  landlord’s  income 
would  fall,  for  the  occupier  would  be  partly  compensated  for  the 
tax  by  a  diminution  of  rent.  It  is,  however,  difficult  to  say  in  what 
proportions  that  part  of  the  tax,  which  was  saved  by  the  occupier 
by  a  fall  of  rent,  would  fall  on  the  building  rent  and  the  ground 
rent.  It  is  probable  that,  in  the  first  instance,  both  would  be 
affected  ;  but  as  houses  are,  though  slowly,  yet  certainly  perishable, 
and  as  no  more  would  be  built  till  the  profits  of  the  builder  were 
restored  to  the  general  level,  building  rent  would,  after  an  interval, 
be  restored  to  its  natural  price.  As  the  builder  receives  rent  only 
whilst  the  building  endures,  he  could  pay  no  part  of  the  tax,  under 
the  most  disastrous  circumstances,  for  any  longer  period. 

The  payment  of  this  tax,  then,  would  ultimately  fall  on  the  oc¬ 
cupier  and  ground  landlord,  but,  “  in  what  proportion  this  final 
payment  would  be  divided  between  them,”  says  Adam  Smith,  “  it 
is  not  perhaps  veiy  easy  to  ascertain.  The  division  would  probably 
be  very  different  in  different  circumstances,  and  a  tax  of  this  kind 
might,  according  to  those  different  circumstances,  affect  very  un¬ 
equally  both  the  inhabitant  of  the  house,  and  the  owner  of  the 
ground.”  * 

Adam  Smith  considers  ground  rents  as  peculiarly  fit  subjects  for 
taxation.  ‘‘Both  ground  rents,  and  the  ordinary  rent  of  land,”  he 
says,  “  are  a  species  of  revenue,  which  the  owner  in  many  cases 
enjoys,  without  any  care  or  attention  of  his  own.  Though  a  part 
of  this  revenue  should  be  taken  from  him,  in  order  to  defray  the 
expenses  of  the  State,  no  discouragement  will  thereby  be  given  to 
any  sort  of  industry.  The  annual  produce  of  the  land  and  labour 
of  the  society,  the  real  wealth  and  revenue  of  the  great  body  of  the 
people,  might  be  the  same  after  such  a  tax  as  before.  Ground 


Hook  v.  Uhap.  ii 


TAXES  ON  HOUSES. 


121 


rents,  and  the  ordinary  rent  of  land  are,  therefore,  perhaps,  the 
species  of  revenue  which  can  best  bear  to  have  a  peculiar  tax  im¬ 
posed  upon  them.”  It  must  be  admitted  that  the  effects  of  these 
taxes  would  be  such  as  Adam  Smith  has  described  :  but  it  would 
surely  be  very  unjust  to  tax  exclusively  the  revenue  of  any  par¬ 
ticular  class  of  a  community.  The  burdens  of  the  State  should  be 
borne  by  all  in  proportion  to  their  means  :  this  is  one  of  the  four 
maxims  mentioned  by  Adam  Smith,  which  should  govern  all  taxa¬ 
tion.  Rent  often  belongs  to  those  who,  after  many  years  of  toil, 
have  realised  their  gains,  and  expended  their  fortunes  in  the  pur¬ 
chase  of  land  or  houses;  and  it  certainly  would  be  an  infringement 
of  that  principle  which  should  ever  be  held  sacred,  the  security  of 
property,  to  subject  it  to  unequal  taxation.  It  is  to  be  lamented, 
that  the  duty  by  stamps,  with  which  the  transfer  of  landed  pro¬ 
perty  is  loaded,  materially  impedes  the  conveyance  of  it  into  those 
hands,  where  it  would  probably  be  made  most  productive.  And 
if  it  be  considered,  that  land,  regarded  as  a  fit  subject  for  exclusive 
taxation,  would  not  only  be  reduced  in  price,  to  compensate  for 
the  risk  of  that  taxation,  but  in  proportion  to  the  indefinite  nature 
and  uncertain  value  of  the  risk,  would  become  a  fit  subject  for 
speculations,  partaking  more  of  the  nature  of  gambling,  than  of 
sober  trade,  it  will  appear  probable,  that  the  hands  into  which  land 
would  in  that  case  be  most  apt  to  fall,  would  be  the  hands  of  those 
who  possess  more  of  the  qualities  of  the  gambler  than  of  the  qua¬ 
lities  of  the  sober-minded  proprietor,  who  is  likely  to  employ  his  land 
to  the  greatest  advantage. 


I  322  I 


CHAPTER  XV. 


TAXES  ON  PROFITS. 

Taxes  on  those  commodities,  which  are  generally  denominated 
luxuries,  fall  on  those  only  who  make  use  of  them.  A  tax  on  wine 
is  paid  by  the  consumer  of  wine.  A  tax  on  pleasure  horses,  or  on 
coaches,  is  paid  by  those  who  provide  for  themselves  such  enjoy¬ 
ments,  and  in  exact  proportion  as  they  provide  them.  But  taxes 
on  necessaries  do  not  affect,  the  consumers  of  necessaries,  in  pro¬ 
portion  to  the  quantity  that  may  be  consumed  by  them,  but  often 
in  a  much  higher  proportion.  A  tax  on  corn,  we  have  observed, 
not  only  affects  a  manufacturer  in  the  proportion  that  lie  and  his 
family  may  consume  corn,  but  it  alters  the  rate  of  profits  of  stock, 
and  therefore  also  affects  his  income.  Whatever  raises  the  wages 
of  labour-,  lowers  the  profits  of  stock ;  therefore  every  tax  on  any 
commodity  consumed  by  the  labourer  has  a  tendency  to  lower  the 
rate  of  profits. 

A  tax  on  hats  will  raise  the  price  of  hats  ;  a  tax  on  shoes,  the 
price  of  shoes ;  if  this  were  not  the  case,  the  tax  would  be  finally 
paid  by  the  manufacturer ;  his  profits  would  be  reduced  below  the 
general  level,  and  he  would  quit  his  trade.  A  partial  tax  on  profits 
will  raise  the  price  of  the  commodity  on  which  it  falls  :  a  tax,  for 
example,  on  the  profits  of  the  hatter,  would  raise  the  price  of  hats  ; 
for  if  his  profits  -were  taxed,  and  not  those  of  any  other  trade,  his 
profits,  unless  he  raised  the  price  of  his  hats,  would  be  below  the 
general  rate  of  profits,  and  he  would  quit  his  employment  for 
another. 

In  the  same  manner,  a  tax  on  the  profits  of  the  farmer  would 
raise  the  price  of  corn  ;  a  tax  on  the  profits  of  the  clothier,  the  price 
of  cloth  ;  and  if  a  tax  in  proportion  to  profits  were  laid  on  all  trades, 
every  commodity  would  be  raised  in  price.  But  if  the  mine  which 
supplied  us  with  the  standard  of  our  money  were  in  this  country, 
and  the  profits  of  the  miner  were  also  taxed,  the  price  of  no  com¬ 
modity  would  rise,  each  man  would  give  an  equal  proportion  of  his 
income,  and  every  thing  would  be  as  before. 

If  money  be  not  taxed,  and  therefore  be  permitted  to  pre¬ 
serve  its  value,  whilst  every  thing  else  is  taxed,  and  is  raised  in 
value,  the  hatter,  the  farmer,  and  clothier,  each  employing  the  same 
capitals,  and  obtaining  the  same  profits,  will  pay  the  same  amount 


TAXES  ON  PROFITS. 


123 


of  tax.  If  the  tax  be  100/.,  the  hats,  the  cloth,  and  the  corn,  Avill 
each  be  increased  in  value  100/.  If  the  hatter  gains  by  his  hats 
1,100/.,  instead  of  1000/.,  he  will  pay  100/.  to  Government  for  the 
tax;  and  therefore  will  still  have  1000/.  to  lay  out  on  goods  for  his 
own  consumption.  But  as  the  cloth,  corn,  and  all  other  commo¬ 
dities,  will  be  raised  in  price  from  the  same  cause,  he  will  not 
obtain  more  for  his  1000/.  than  he  before  obtained  for  910/.,  and 
thus  will  he  contribute  by  his  diminished  expenditure  to  the 
exigencies  of  the  State ;  he  will,  by  the  payment  of  the  tax, 
have  placed  a  portion  of  the  produce  of  the  land  and  labour  of  the 
country  at  the  disposal  of  Government,  instead  of  using  that 
portion  himself.  If,  instead  of  expending  his  1000/.,  he  adds  it 
to  his  capital,  he  will  find  in  the  rise  of  wages,  and  in  the  in¬ 
creased  cost  of  the  raw  material  and  machinery,  that  his  saving 
of  1000/.  does  not  amount  to  more  than  a  saving  of  910/.  amounted 
to  before. 

If  money  be  taxed,  or  if  by  any  other  cause  its  value  be  altered, 
and  all  commodities  remain  precisely  at  the  same  price  as  before, 
the  profits  of  the  manufacturer  and  farmer  will  also  be  the  same  as 
before,  they  will  continue  to  be  1000/. ;  and  as  they  will  each  have 
to  pay  100/.  to  Government,  they  will  retain  only  900/.,  which  will 
give  them  a  less  command  over  the  produce  of  the  land  and  labour 
of  the  country,  whether  they  expend  it  in  productive  or  unproduc¬ 
tive  labour.  Precisely  what  they  lose,  Government  will  gain.  In 
the  first  case,  the  contributor  to  the  tax  would,  for  1000/.,  have  as 
great  a  quantity  of  goods  as  he  before  had  for  910/. ;  in  the  second, 
he  would  have  only  as  much  as  he  before  had  for  900/.,  for  the 
price  of  goods  would  remain  unaltered,  and  he  would  have  only 
900/.  to  expend.  This  proceeds  from  the  difference  in  the  amount 
of  the  tax  ;  in  the  first  case,  it  is  only  an  eleventh  of  liis  income  ;  in 
the  second,  it  is  a  tenth ;  money  in  the  two  cases  being  of  a  dif¬ 
ferent.  value. 

But  although,  if  money  be  not  taxed,  and  do  not  alter  in  value,  all 
commodities  will  rise  in  price,  they  will  not  rise  in  the  same  pro¬ 
portion  ;  they  will  not  after  the  tax  bear  the  same  relative  value  to 
each  other  which  they  did  before  the  tax.  In  a  former  part  of  this 
work,  we  discussed  the  effects  of  the  division  of  capital  into  fixed 
and  circulating,  or  rather  into  durable  and  perishable  capital,  on 
the  prices  of  commodities.  We  showed  that  two  manufacturers 
might  employ  precisely  the  same  amount  of  capital,  and  might 
derive  from  it  precisely  the  same  amount  of  profits,  but  that  they 
would  sell  their  commodities  for  very  different  sums  of  money, 
according  as  the  capitals  they  employed  were  rapidly,  or  slowly, 
consumed  and  reproduced.  The  one  might  sell  his  goods  for  4000/., 
the  other  for  10,000/.,  and  they  might  both  employ  10,000/.  of 
capital,  and  obtain  20  per  cent,  profit,  or  2000/.  The  capital  of  One 
might  consist,  for  example,  of  2000/.  circulating  capital,  to  be  repro¬ 
duced,  and  6000/.  fixed,  in  buildings  and  machinery ;  the  capital 


124 


TAXES  ON  PROFITS. 


of  the  other,  on  the  contrary,  might  consist  of  8000Z.  of  circu¬ 
lating,  and  of  only  2000Z.  fixed  capital  in  machinery  and  buildings. 
Now,  if  each  of  these  persons  were  to  be  taxed  10  per  cent,  on 
his  income,  or  200/.,  the  one  to  make  his  business  yield  him  the 
general  rate  of  profit,  must  raise  his  goods  from  10,000/.  to  10,200/. ; 
the  other  would  also  be  obliged  to  raise  the  price  of  his  goods  from 
4000/.  to  4,200/.  Before  the  tax,  the  goods  sold  by  one  of  these 
manufacturers  were  24  times  more  valuable  than  the  goods  of  the 
other  ;  after  the  tax  they  will  be  2.42  times  more  valuable  :  the  one 
kind  will  have  risen  two  per  cent.  :  the  other  five  per  cent. :  conse¬ 
quently  a  tax  upon  income,  whilst  money  continued  unaltered  in 
value,  would  alter  the  relative  prices  and  value  of  commodities. 
This  would  be  true  also,  if  the  tax,  instead  of  being  laid  on  the 
profits,  were  laid  on  the  commodities  themselves  :  provided  they 
Avere  taxed  in  proportion  to  the  value  of  the  capital  employed  on 
their  production,  they  would  rise  equally,  whatever  might  be  their 
value,  and  therefore  they  would  not  preserve  the  same  proportion 
as  before.  A  commodity,  which  rose  from  ten  to  eleven  thousand 
pounds,  would  not  bear  the  same  relation  as  before  to  another  which 
rose  from  2000/.  to  3000/.  If,  under  these  circumstances,  money 
rose  in  value,  from  whatever  cause  it  might  proceed,  it  would 
not  affect  the  prices  of  commodities  in  the  same  proportion.  The 
same  cause  which  would  lower  the  price  of  one  from  10,200/.  to 
10,000/.  or  less  than  two  per  cent.,  would  lower  the  price  of  the 
other  from  4,200/.  to  4000/.  or  4f  per  cent.  If  they  fell  in  any 
different  proportion,  profits  would  not  be  equal ;  for  to  make  them 
equal,  Avhen  the  price  of  the  first  commodity  Avas  10,000/.,  the  price 
of  the  second  should  be  4000/. ;  and  Avhen  the  price  of  the  first 
aa’rs  10,200/.,  the  price  of  the  other  should  be  4,200/. 

The  consideration  of  this  fact  Avill  lead  to  the  understanding  of  a 
very  important  principle,  Avhich,  I  believe,  has  never  been  adverted 
to.  It  is  this ;  that  in  a  country  Avhere  no  taxation  subsists,  the 
alteration  in  the  value  of  money  arising  from  scarcity  or  abundance 
Avill  operate  in  an  equal  proportion  on  the  prices  of  all  commodities; 
that  if  a  commodity  of  1000/.  value  rise  to  1,200/.,  or  fall  to  800/.,  a 
commodity  of  10,000/.  value  will  rise  to  12,000/.  or  fall  to  8000/.; 
but  in  a  country  Avhere  prices  are  artificially  raised  by  taxation,  the 
abundance  of  money  from  an  influx,  or  the  exportation  and  con¬ 
sequent  scarcity  of  it  from  foreign  demand,  will  not  operate  in  the 
same  proportion  on  the  prices  of  all  commodities  ;  some  it  Avill  raise 
or  loAver  5,  6,  or  12  per  cent.,  others  3,  4,  or  7  per  cent.  If  a  country 
Avere  not  taxed,  and  money  should  fall  in  value,  its  abundance  in 
eA'ery  market  Avould  produce  similar  effects  in  each.  If  meat  rose 
20  per  cent.,  bread,  beer,  shoes,  labour,  and  every  commodity, 
Avould  also  rise  20  per  cent.  ;  it  is  necessary  they  should  do  so,  to 
secure  to  each  trade  the  same  rate  of  profits.  But  this  is  no  longer 
true  when  any  of  these  commodities  is  taxed  ;  if,  in  that  case,  they 
should  all  rise  in  proportion  to  the  fall  in  the  value  of  money,  profits 


TAXES  ON  PROFITS. 


125 


would  be  rendered  unequal ;  in  the  case  of  the  commodities  taxed, 
profits  would  be  raised  above  the  general  level,  and  capital  would 
be  removed  from  one  employment  to  another,  till  an  equilibrium  of 
profits  was  restored,  which  could  only  be  after  the  relative  prices 
were  altered. 

Will  not  this  principle  account  for  the  different  effects,  which  it 
was  remarked  were  produced  on  the  prices  of  commodities,  from 
the  altered  value  of  money  during  the  Bank-restriction  ?  It  was 
objected  to  those  who  contended  that  the  currency  was  at  that 
period  depreciated,  from  the  too  great  abundance  of  the  paper  cir¬ 
culation,  that,  if  that  were  the  fact,  all  commodities  ought  to  have 
risen  in  the  same  proportion  ;  but  it  was  found  that  many  had  varied 
considerably  more  than  others,  and  thence  it  was  inferred  that  the 
rise  of  prices  was  owing  to  something  affecting  the  value  of  com¬ 
modities,  and  not  to  any  alteration  in  the  value  of  the  currency.  It 
appears,  however,  as  we  have  just  seen,  that  in  a  country  where 
commodities  are  taxed,  they  will  not  all  vary  in  price  in  the  same 
proportion,  either  in  consequence  of  a  rise  or  of  a  fall  in  the  value 
of  currency. 

If  the  profits  of  all  trades  were  taxed,  excepting  the  profits  of  the 
farmer,  all  goods  would  rise  in  money  value,  excepting  raw  produce. 
The  farmer  would  have  the  same  corn  income  as  before,  and  would 
sell  his  corn  also  for  the  same  money  price ;  but  as  he  would  be 
obliged  to  pay  an  additional  price  for  all  the  commodities,  except 
corn,  which  he  consumed,  it  would  be  to  him  a  tax  on  expenditure. 
Nor  would  he  be  relieved  from  this  tax  by  an  alteration  in  the  value 
of  money,  for  an  alteration  in  the  value  of  money  might  sink  all  the 
taxed  commodities  to  their  former  price,  but  the  untaxed  one  would 
sink  below  its  former  level ;  and,  therefore,  though  the  farmer 
would  purchase  his  commodities  at  the  same  price  as  before,  he 
would  have  less  money  with  which  to  purchase  them. 

The  landlord,  too,  would  be  precisely  in  the  same  situation  ;  he 
would  have  the  same  corn,  and  the  same  money-rent  as  before,  if 
all  commodities  rose  in  price,  and  money  remained  at  the  same 
value ;  and  he  would  have  the  same  corn,  but  a  less  money-rent,  if 
all  commodities  remained  at  the  same  price :  so  that  in  either  case, 
though  his  income  were  not  directly  taxed,  he  would  indirectly 
contribute  towards  the  money  raised. 

But  suppose  the  profits  of  the  farmer  to  be  also  taxed,  he  then 
would  be  in  the  same  situation  as  other  traders  :  his  raw  produce 
would  rise,  so  that  he  would  have  the  same  money  revenue,  after 
paying  the  tax,  but  he  would  pay  an  additional  price  for  all  the 
commodities  he  consumed,  raw  produce  included. 

His  landlord,  however,  would  be  differently  situated ;  he  would 
be  benefited  by  the  tax  on  his  tenant’s  profits,  as  he  would  be  com¬ 
pensated  for  the  additional  price  at  which  he  would  purchase  his 
manufactured  commodities,  if  they  rose  in  price  ;  and  he  would  have 
the  same  money  revenue,  if,  in  consequence  of  a  rise  in  the  value  of 


126 


TAX  ES  ON  PUOFJTS. 


money,  commodities  sold  at  their  former  price.  A  tax  on  the  profits 
of  the  farmer,  is  not  a  tax  proportioned  to  the  gross  prodace  of  the 
land,  but  to  its  net  produce,  after  the  payment  of  rent,  wages,  and 
all  other  charges.  As  the  cultivators  of  the  different  kinds  of  land, 
Nos.  1,  2,  and  3,  employ  precisely  the  same  capitals,  they  will  get 
precisely  the  same  profits,  whatever  may  be  the  quantity  of  gross 
produce  which  one  may  obtain  more  than  the  other ;  and  conse¬ 
quently  they  will  be  all  taxed  alike.  Suppose  the  gross  produce  of 
the  land  of  the  quality  No.  1  to  be  180  qrs.,  that  of  No.  2,  170  qrs., 
and  of  No.  3,  160,  and  each  to  be  taxed  10  quarters,  the  difference 
between  the  produce  of  No.  1,  No.  2,  and  No.  3,  after  paying  the 
tax,  will  be  the  same  as  before;  for  if  No.  1  be  reduced  to  170, 
No.  2  to  160,  and  No.  3  to  150  qrs.,  the  difference  between  3  and  1 
will  be  as  before,  20  qrs.;  and  of  No.  3  and  No.  2,  10  qrs.  If, 
after  the  tax,  the  prices  of  corn  and  of  every  other  commodity 
should  remain  the  same  as  before,  money-rent,  as  well  as  corn  rent, 
would  continue  unaltered  ;  but  if  the  price  of  corn  and  every  other 
commodity  should  rise  in  consequence  of  the  tax,  money  rent  will 
also  rise  in  the  same  proportion.  If  the  price  of  corn  were  4k  per 
quarter,  the  rent  of  No.  1  would  be  80k,  and  that  of  No,  2,  40k , 
but  if  corn  rose  five  percent.,  or  to  4/.  4s.,  rent  would  also  rise  five 
per  cent.,  for  twenty  quarters  of  corn  would  then  be  worth  84  k, 
and  ten  quarters  42/.  ;  so  that  in  every  case  the  landlord  will  be 
unaffected  by  such  a  tax.  A  tax  on  the  profits  of  stock  always 
leaves  corn  rent  unaltered,  and  therefore  money  rent  varies  with 
the  price  of  corn  ;  but  a  tax  on  raw  produce,  or  tithes,  never  leaves 
corn  rent  unaltered,  but  generally  leaves  money-rent  the  same  as 
before.  In  another  part  of  tins  work  I  have  observed,  that  if  a 
land-tax  of  the  same  money  amount  were  laid  on  every  kind  of 
land  in  cultivation,  without  any  allowance  for  difference  of  fertility, 
it  would  be  very  unequal  in  its  operation,  as  it  would  be  a  profit  to  the 
landlord  of  the  more  fertile  lands.  It  would  raise  the  price  of  corn 
in  proportion  to  the  burden  borne  by  the  farmer  of  the  worst  land ; 
but  this  additional  price  being  obtained  for  the  greater  quantity  of 
produce  yielded  by  the  better  land,  farmers  of  such  land  would  be 
benefited  during  their  leases,  and  afterwards,  the  advantage  would 
go  to  the  landlord  in  the  form  of  an  increase  of  rent.  The  effect 
of  an  equal  tax  on  the  profits  of  the  farmer  is  precisely  the  same; 
it  raises  the  money  rent  of  the  landlords,  if  money  retains  the  same 
value;  but  as  the  profits  of  all  other  trades  are  taxed  as  well  as 
thosd  of  the  farmer,  and  consequently  the  prices  of  all  goods,  as  well 
as  corn,  are  raised,  the  landlord  loses  as  much  by  the  increased 
money  price  of  the  goods  and  corn  on  which  his  rent  is  expended, 
as  he  gains  by  the  rise  of  his  rent.  If  money  should  rise  in  value, 
and  all  things  should,  after  a  tax  on  the  profits  of  stock,  fall  to  their 
former  prices,  rent  also  would  be  the  same  as  before.  The  landlord 
would  receive  the  same  money  rent,  and  would  obtain  all  the  com- 


TAXES  ON  PROFITS. 


127 


moffities  on  which  it  was  expended  at  their  former  price ;  so  that 
under  all  circumstances  he  would  continue  untaxed.* 

This  circumstance  is  curious.  By  taxing  the  profits  of  the  farmer 
you  do  not  burthen  him  more  than  if  you  exempted  his  profits  from 
the  tax,  and  the  landlord  has  a  decided  interest  that  his  tenants’ 
profits  should  be  taxed,  as  it  is  only  on  that  condition  that  he  him¬ 
self  continues  really  untaxed. 

A  tax  on  the  profits  of  capital  would  also  aflfect  the  stock-holder, 
if  all  commodities  were  to  rise  in  proportion  to  the  tax,  although 
his  dividends  continued  untaxed  ;  but  if,  from  the  alteration  in  the 
value  of  money,  all  commodities  were  to  sink  to  their  former  price, 
the  stock-holder  would  pay  nothing  towards  the  tax ;  he  would 
purchase  all  his  commodities  at  the  same*  price,  but  would  still 
receive  the  same  money  dividend. 

If  it  be  agreed,  that  by  taxing  the  profits  of  one  manufacturer 
only,  the  price  of  his  goods  would  rise,  to  put  him  on  an  equality 
with  all  other  manufacturers;  and  that  by  taxing  the  profits  of 
two  manufacturers,  the  prices  of  two  descriptions  of  goods  must 
rise,  I  do  not  see  how  it  can  be  disputed,  that  by  taxing  the 
profits  of  all  manufacturers,  the  prices  of  al  1  goods  would  rise,  pro¬ 
vided  the  mine  which  supplied  us  with  money  were  in  this  country, 
and  continued  untaxed.  But  as  money,  or  the  standard  of  money, 
is  a  commodity  imported  from  abroad,  the  prices  of  all  goods  could 
not  rise  ;  for  such  an  effect  could  not  take  place  without  an  addi¬ 
tional  quantity  of  money, f  which  could  not  be  obtained  in  exchange 
lor  dear  goods,  as  was  shown  in  page  57.  If,  however,  such  a  rise 
could  take  place,  it  could  not  be  permanent,  for  it  would  have  a 
powerful  influence  on  foreign  trade.  In  return  for  commodities 
imported,  those  dear  goods  could  not  be  exported,  and  therefore 
we  should  for  a  time  continue  to  buy,  although  we  ceased  to  sell ; 
and  should  export  money,  or  bullion,  till  the  relative  prices  of  com 
rnodities  were  nearly  the  same  as  before.  It  appears  to  me  abso¬ 
lutely  certain,  that  a  well  regulated  tax  on  profits,  would  ultimately 

*  That  the  profits  of  the  farmer  only  should  be  taxed,  and  not  the  profits  of  any 
other  capitalist,  would  be  highly  beneficial  to  landlords.  It  would,  in  fact,  be  a  tax 
on  the  consumers  of  raw  produce,  partly  for  the  benefit  of  the  State,  and  partly  for  the 
benefit  of  landlords. 

t  On  further  consideration,  I  doubt  whether  any  more  money  .would  be  required  to 
circulate  the  same  quantity  of  commodities,  if  their  prices  be  raised  by  taxation,  and 
not  by  difiiculty  of  production.  Suppose  100,000  quarters  of  corn  to  be  sold  in  a 
certain  district,  and  in  a  certain  time,  at  4/.  per  quarter,  arid  that  in  consequence  of  a 
direct  tax  of  8s.  per  quarter,  corn  rises  to  4/.  8s.,  the  same  quantity  of  money,  I  think,  and 
no  more,  would  be  required  to  circulate  this  corn  at  the  increased  price.  If  I  before 
purchased  11  quarters  at  4/.,  and,  in  consequence  of  the  tax,  am  obliged  to  reduce  mv 
consumption  to  10  quarters,  I  shall  not  require  more  money,  for  in  all  cases  I  shall 
pay  44/.  for  my  corn.  The  public  would,  in  fact,  consume  one-eleventh  less,  and  this 
quantity  would  be  consumed  by  Government,  The  money  necessary  to  purchase  it, 
would  be  derived  from  the  8s.  per  quarter,  to  be  received  from  the  farmers  in  the  shape 
of  a  tax,  but  the  amount  levied  would  at  the  same  time  be  paid  to  them  for  their  corn  ; 
therefore  the  tax  is  in  fact  a  tax  in  kind,  and  does  not  make  it  necessary  that  any 
more  money  should  be  used,  or,  if  any,  so  little,  that  the  quantity  maybe  safely 
neglected. 


128 


TAXF.S  ON  PROFITS. 


restore  commodities,  both  of  home  and  foreign  manufacture,  to  the 
same  money  price  which  they  bore  before  the  tax  was  imposed. 

As  taxes  on  raw  produce,  tithes,  taxes  on  wages,  and  on  the 
necessaries  of  the  labourer,  will,  by  raising  wages,  lower  profits, 
they  will  all,  though  not  in  an  equal  degree,  be  attended  with  the 
same  effects. 

The  discovery  of  machinery,  which  materially  improves  home 
manufactures,  always  tends  to  raise  the  relative  value  of  money, 
and  therefore  to  encourage  its  importation.  All  taxation,  all  in¬ 
creased  impediments,  either  to  the  manufacturer  or  the  grower  of 
commodities,  tend,  on  the  contrary,  to  lower  the  relative  value  of 
money,  and  therefore  to  encourage  its  exportation. 


!  129  1 


CHAPTER  XVI. 


TAXES  ON  WAGES. 

Taxes  on  wages  will  raise  wages,  and  therefore  will  diminish  the 
rate  or  the  profits  of  stock.  We  have  already  seen  that  a  tax  on 
necessaries  will  raise  their  prices,  and  will  be  followed  by  a  rise  of 
wages.  The  only  difference  between  a  tax  on  necessaries  and  a 
tax  on  wages  is,  that  the  former  will  necessarily  be  accompanied  by 
a  rise  in  the  price  of  necessaries,  but  the  latter  will  not ;  towards  a 
tax  on  wages,  consequently,  neither  the  stock-holder,  the  landlord, 
nor  any  other  class  but  the  employers  of  labour  will  contribute.  A 
tax  on  wages  is  wholly  a  tax  on  profits ;  a  tax  on  necessaries  is 
partly  a  tax  on  profits  and  partly  a  tax  on  rich  consumers.  The 
ultimate  effects  which  will  result  from  such  taxes,  then,  are  pre¬ 
cisely  the  same  as  those  which  result  from  a  direct  tax  on  profits. 

“  The  wages  of  the  inferior  classes  of  workmen,”  says  Adam 
Smith,  “  I  have  endeavoured  to  show  in  the  first  book,  are  every¬ 
where  necessarily  regulated  by  two  different  circumstances, — the 
demand  for  labour,  and  the  ordinary  or  average  price  of  provisions. 
The  demand  for  labour,  according  as  it  happens  to  be  either  increas¬ 
ing,  stationary,  or  declining,  or  to  require  an  increasing,  stationary, 
or  declining  population,  regulates  the  subsistence  of  the  labourer, 
and  determines  in  what  degree  it  shall  be  either  liberal,  moderate, 
or  scanty.  The  ordinary  or  average  price  of  provisions  determines 
the  quantity  of  money  which  must  be  paid  to  the  workmen,  in  order 
to  enable  him,  one  year  with  another,  to  purchase  this  liberal,  mo¬ 
derate,  or  scanty  subsistence.  AVhile  the  demand  for  labour  and 
the  price  of  provisions,  therefore,  remain  the  same,  a  direct  tax 
upon  the  wages  of  labour  can  have  no  other  effect  than  to  raise 
them  somewhat  higher  than  the  tax.” 

To  the  proposition,  as  it  is  here  advanced  by  Dr  Smith,  Mr 
Buchanan  offers  two  objections.  First,  he  denies  that  the  money 
wages  of  labour  are  regulated  by  the  price  of  provisions  ;  and 
secondly,  he  denies  that  a  tax  on  the  wages  of  labour  would  raise 
the  price  of  labour.  On  the  first  point  Mr  Buchanan’s  argument 
is  as  follows,  page  59  :  “  The  wages  of  labour,  it  has  already  been 
remarked,  consist  not  in  money,  but  in  what  money  purchases, 
namely,  provisions  and  other  necessaries ;  and  the  allowance  of  the 
labourer  out  of  the  common  stock  will  always  be  in  proportion  to 
the  supply.  Where  provisions  are  cheap  and  abundant,  his  share 

i 


130 


TAXES  ON  WAGES. 


will  be  the  larger;  and  where  they  are  scarce  and  dear ,  it  will  be 
the  less.  His  wages  will  always  give  him  his  just  share,  and  they 
cannot  give  him  more.  It  is  an  opinion,  indeed,  adopted  by  Dr 
Smith  and  most  other  writers,  that  the  money  price  of  labour  is 
regulated  by  the  money  price  of  provisions,  and  that,  when  provi¬ 
sions  rise  in  price,  "wages  rise  in  proportion.  But  it  is  clear  that 
the  price  of  labour  has  no  necessary  connexion  with  the  price  of 
food,  since  it  depends  entirely  on  the  supply  of  labourers  compared 
with  the  demand.  Besides,  it  is  to  be  observed,  that  the  high 
price  of  provisions  is  a  certain  indication  of  a  deficient  supply,  and 
arises  in  the  natural  course  of  things  for  the  purpose  of  retarding 
the  consumption.  A  smaller  supply  of  food,  shared  among  the 
same  number  of  consumers,  will  evidently  leave  a  smaller  portion 
to  each,  and  the  labourer  must  bear  his  share  of  the  common  want. 
To  distribute  this  burden  equally,  and  to  prevent  the  labourer  from 
consuming  subsistence  so  freely  as  before,  the  price  rises.  But 
wages,  it  seems,  must  rise  along  with  it,  that  he  may  still  use  the 
same  quantity  of  a  scarcer  commodity ;  and  thus  nature  is  repre¬ 
sented  as  counteracting  her  own  purposes ; — first,  raising  the  price 
of  food  to  diminish  the  consumption,  and  afterwards  raising  wages 
to  give  the  labourer  the  same  supply  as  before.” 

In  this  argument  of  Mr  Buchanan,  there  appears  to  me  to  be  a 
great  mixture  of  truth  and  error.  Because  a  high  price  of  provi¬ 
sions  is  sometimes  occasioned  by  a  deficient  supply,  Mr  Buchanan 
assumes  it  as  a  certain  indication  of  deficient  supply.  He  attributes 
to  one  cause  exclusively  that  which  may  arise  from  many.  It  is 
undoubtedly  true  that,  in  the  case  of  a  deficient  supply,  a  smaller 
quantity  will  be  shared  among  the  same  number  of  consumers,  and 
a  smaller  portion  will  fall  to  each.  To  distribute  this  privation 
equally,  and  to  prevent  the  labourer  from  consuming  subsistence  sc 
freely  as  before,  the  price  rises.  It  must,  therefore,  be  conceded 
to  Mr  Buchanan  that  any  rise  in  the  price  of  provisions  occasioned 
by  a  deficient  supply  will  not  necessarily  raise  the  money  wages  of 
labour,  as  the  consumption  must  be  retarded,  which  can  only  be 
effected  by  diminishing  the  power  of  the  consumers  to  purchase. 
But,  because  the  price  of  provisions  is  raised  by  a  deficient  supply, 
we  are  by  no  means  warranted  in  concluding,  as  Mr  Buchanan 
appears  to  do,  that  there  may  not  be  an  abundant  supply  with  a 
high  price  ;  not  a  high  price  "with  regard  to  money  only,  but  with 
regard  to  all  other  things. 

The  natural  price  of  commodities,  which  always  ultimately 
governs  their  market  price,  depends  on  the  facility  of  production  • 
but  the  quantity  produced  is  not  in  proportion  to  that  facility. 
Although  the  lands  which  are  now  taken  into  cultivation  are  much 
inferior  to  the  lands  in  cultivation  three  centuries  ago,  and  there¬ 
fore  the  difficulty  of  production  is  increased,  who  can  entertain  any 
doubt  but  that  the  quantity  produced  now  very  far  exceeds  the 
quantity  then  produced?  Not  only  is  a  high  price  compatible 


TAXES  ON  WAGES. 


131 


with  an  increased  supply,  but  it  rarely  fails  to  accompany  it.  If, 
then,  in  consequence  of  taxation,  or  of  difficulty  of  production,  the 
price  of  provisions  be  raised  and  the  quantity  be  not  diminished, 
the  money  wages  of  labour  will  rise ;  for,  as  Mr  Buchanan  has 
justly  observed,  “  The  wages  of  labour  consist  not  in  money,  but 
in  what  money  purchases,  namely,  provisions  and  other  necessaries ; 
and  the  allowance  of  the  labourer  out  of  the  common  stock  will 
always  be  in  proportion  to  the  supply.” 

With  respect  to  the  second  point,  whether  a  tax  on  the  wages  of 
labour  would  raise  the  price  of  labour,  Mr  Buchanan  says,  “  After 
the  labourer  has  received  the  fair  recompense  of  his  labour,  how  can 
he  have  recourse  on  his  employer,  for  what  he  is  afterwards  com¬ 
pelled  to  pay  away  in  taxes  ?  There  is  no  law  or  principle  in  human 
affairs  to  warrant  such  a  conclusion.  After  the  labourer  has  received 
his  wages,  they  are  in  his  own  keeping,  and  he  must,  as  far  as  he  is 
able,  bear  the  burden  of  whatever  exactions  he  may  ever  afterwards 
be  exposed  to  :  for  he  has  clearly  no  way  of  compelling  those  to 
reimburse  him,  who  have  already  paid  him  the  fair  price  of  his  work.” 
Mr  Buchanan  has  quoted,  with  great  approbation,  the  following 
able  passage  from  Mr  Mai  thus5  s  work  on  population,  which  appears 
to  me  completely  to  answer  his  objection.  “  The  price  of  labour, 
when  left  to  find  its  natural  level,  is  a  most  important  political 
barometer,  expressing  the  relation  between  the  supply  of  provisions, 
and  the  demand  for  them,  between  the  quantity  to  be  consumed, 
and  the  number  of  consumers  ;  and,  taken  on  the  average,  inde¬ 
pendently  of  accidental  circumstances,  it  further  expresses,  clearly, 
the  wants  of  the  society  respecting  population ;  that  is,  whatever 
may  be  the  number  of  children  to  a  marriage  necessary  to  maintain 
exactly  the  present  population,  the  price  of  labour  will  be  just  suffi¬ 
cient  to  support  this  number,  or  be  above  it,  or  below  it,  according 
to  the  state  of  the  real  funds,  for  the  maintenance  of  labour,  whether 
stationary,  progressive,  or  retrograde.  Instead,  however,  of  consi¬ 
dering  it  in  this  light,  we  consider  it  as  something  which  we  may 
raise  or  depress  at  pleasure,  something  which  depends  principally 
on  his  majesty's  justices  of  the  peace.  When  an  advance  in  the 
price  of  provisions  already  expresses  that  the  demand  is  too  great 
for  the  supply,  in  order  to  put  the  labourer  in  the  same  condition 
as  before,  we  raise  the  price  of  labour,  that  is,  we  increase  the  de¬ 
mand,  and  are  then  much  surprised  that  the  price  of  provisions 
continues  rising.  In  this,  we  act  much  in  the  same  manner  as  if, 
when  the  quicksilver  in  the  common  weather-glass  stood  at  stormy , 
we  were  to  raise  it  by  some  forcible  pressure  to  settled  fair,  and 
then  be  greatly  astonished  that  it  continued  raining.” 

“  The  price  of  labour  will  express  clearly  the  wants  of  the  society 
respecting  population.;”  it  will  be  just  sufficient  to  support  the 
population,  which  at  that  time  the  state  of  the  funds  for  the  main¬ 
tenance  of  labourers  requires.  If  the  labourer’s  wages  were  before 
only  adequate  to  supply  the  requisite  population,  they  will,  after 


132 


TAXES  ON  WAGES. 


the  tax,  be  inadequate  to  that  supply,  for  he  will  not  have  the  same 
funds  to  expend  on  his  family.  Labour  will  therefore  rise,  because 
the  demand  continues,  and  it  is  only  by  raising  the  price  that  the 
supply  is  not  checked. 

Nothing  is  more  common  than  to  see  hats  or  malt  rise  when 
taxed  ;  they  rise  because  the  requisite  supply  would  not  be  afforded 
if  they  did  not  rise  :  so  with  labour,  when  wages  are  taxed,  its  price 
rises,  because,  if  it  did  not,  the  requisite  population  would  not  be 
kept  up.  Does  not  Mr  Buchanan  allow  all  that  is  contended  for, 
when  he  says,  that  “  were  he  (the  labourer)  indeed  reduced  to  a  bare 
allowance  of  necessaries,  he  would  then  suffer  no  further  abatement 
of  his  wages,  as  he  could  not  on  such  conditions  continue  his  race  ?” 
Suppose  the  circumstances  of  the  country  to  be  such,  that  the  lowest 
labourers  are  not  only  called  upon  to  continue  their  race,  but  to  in¬ 
crease  it ;  their  wages  would  be  regulated  accordingly.  Can  they 
multiply  in  the  degree  required,  if  a  tax  takes  from  them  a  part  of 
their  wages,  and  reduces  them  to  bare  necessaries? 

It  is  undoubtedly  true  that  a  taxed  commodity  will  not  rise  in 
proportion  to  the  tax,  if  the  demand  for  it  diminish,  and  if  the 
quantity  cannot  be  reduced.  If  metallic  money  were  in  general 
use,  its  value  would  not  for  a  considerable  time  be  increased  by  a 
tax,  in  proportion  to  the  amount  of  the  tax,  because  at  a  higher 
price,  the  demand  would  be  diminished,  and  the  quantity  would 
not  be  diminished  ;  and  unquestionably  the  same  cause  frequently 
influences  the  wages  of  labour  ;  tire  number  of  labourers  cannot  be 
rapidly  increased  or  diminished  in  proportion  to  the  increase  or  di¬ 
minution  of  the  fund  which  is  to  employ  them ;  but  in  the  case 
supposed,  there  is  no  necessary  diminution  of  demand  for  labour, 
and  if  diminished,  the  demand  does  not  abate  in  proportion  to  the 
tax.  Mr  Buchanan  forgets  that  the  fund  raised  by  the  tax  is 
employed  by  Government  in  maintaining  labourers,  unproductive 
indeed,  but  still  labourers.  If  labour  were  not  to  rise  when  wages 
are  taxed,  there  would  be  a  great  increase  in  the  competition  for 
labour,  because  the  owners  of  capital,  who  would  have  nothing  to 
pay  towards  such  a  tax,  would  have  the  same  funds  for  employing 
labour;  whilst  the  Government  who  received  the  tax  would  have 
an  additional  fund  for  the  same  purpose.  Government  and  the 
people  thus  become  competitors,  and  the  consequence  of  their  com¬ 
petition  is  a  rise  in  the  price  of  labour.  The  same  number  of  men 
only  will  be  employed,  but  they  will  be  employed  at  additional 
wages. 

If  the  tax  had  been  laid  at  once  on  the  people  of  capital,  their 
fund  for  the  maintenance  of  labour  would  have  been  diminished  in 
the  very  same  degree  that  the  fund  of  Government  for  that  purpose 
had  been  increased  ;  and  therefore  there  would  have  been  no  rise 
in  wages ;  for  though  there  would  be  the  same  demand,  there  would 
not  be  the  same  competition.  If  when  the  tax  were  levied,  Govern¬ 
ment  at  once  exported  the  produce  of  it  as  a  subsidy  to  a  foreign 


TAXES  ON  WAGES. 


133 


State,  and  if  therefore  these  funds  were  devoted  to  the  maintenance 
of  foreign,  and  not  of  English  labourers,  such  as  soldiers,  sailors, 
&c.  &c. ;  then,  indeed,  there  would  be  a  diminished  demand  for 
labour,  and  wages  might  not  increase,  although  they  were  taxed  ; 
but  the  same  thing  would  happen  if  the  tax  had  been  laid  on  con¬ 
sumable  commodities,  on  the  profits  of  stock,  or  if  in  any  other 
manner  the  same  sum  had  been  raised  to  supply  this  subsidy :  less 
labour  could  be  employed  at  home.  In  one  case  wages  are  pre¬ 
vented  from  rising,  in  the  other  they  must  absolutely  fall.  But 
suppose  the  amount  of  a  tax  on  wages  were,  after  being  raised  on 
the  labourers,  paid  gratuitously  to  their  employers,  it  would  increase 
their  money  fund  for  the  maintenance  of  labour,  but  it  would  not 
increase  either  commodities  or  labour.  It  would  consequently  in¬ 
crease  the  competition  amongst  the  employers  of  labour,  and  the 
tax  would  be  ultimately  attended  with  no  loss  either  to  master  or 
labourer.  The  master  would  pay  an  increased  price  for  labour  ;  the 
addition  which  the  labourer  received  would  be  paid  as  a  tax  to 
Government,  and  would  be  again  returned  to  the  masters.  It  must, 
however,  not  be  forgotten,  that  the  produce  of  taxes  is  generally 
wastefully  expended,  they  are  always  obtained  at  the  expense  of  the 
people’s  comforts  and  enjoyments,  and  commonly  either  diminish 
capital  or  retard  its  accumulation.  By  diminishing  capital  they 
tend  to  diminish  the  real  fund  destined  for  the  maintenance  of 
labour;  and  therefore  to  diminish  the  real  demand  for  it.  Taxes, 
then,  generally,  as  far  as  they  impair  the  real  capital  of  the  country, 
diminish  the  demand  for  labour,  and  therefore  it  is  a  probable,  but 
not  a  necessary,  nor  a  peculiar  consequence  of  a  tax  on  wages,  that 
though  wages  would  rise,  they  would  not  rise  by  a  sum  precisely 
equal  to  the  tax. 

Adam  Smith,  as  we  have  seen,  has  fully  allowed  that  the  effect 
of  a  tax  on  wages,  would  be  to  raise  wages  by  a  sum  at  least  equal 
to  the  tax,  and  would  be  finally,  if  not  immediately,  paid  by  the 
employer  of  labour.  Thus  far  we  fully  agree ;  but  we  essentially 
differ  in  our  views  of  the  subsequent  operation  of  such  a  tax. 

“  A  direct  tax  upon  the  wages  of  labour,  therefore,”  says  Adam 
Smith,  “  though  the  labourer  might  perhaps  pay  it  out  of  his  hand, 
could  not  properly  be  said  to  be  even  advanced  by  him  ;  at  least  if 
the  demand  for  labour  and  the  average  price  of  provisions  remained 
the  same  after  the  tax  as  before  it.  In  all  such  cases,  not  only  the 
tax  but  something  more  than  the  tax,  would  in  reality  be  advanced 
by  the  person  who  immediately  employed  him.  The  final  payment 
would  in  different  cases  fall  upon  different  persons.  The  rise  which 
such  a  tax  might  occasion  in  the  wages  of  manufacturing  labour, 
would  be  advanced  by  the  master  manufacturer,  who  would  he 
entitled  and  obliged  to  charge  it  with  a  profit ,  upon  the  price  oj  his 
goods.  The  rise  which  such  a  tax  might  occasion  in  country  labom, 
would  be  advanced  by  the  farmer,  who,  in  order  to  maintain  tin* 
same  number  of  labourers  as  before,  would  be  obliged  to  employ  a 


134 


TAXES  ON  WAGES., 


greater  capital.  In  order  to  get  back  this  greater  capital,  together 
ivith  the  ordinary  profits  of  stock,  it  would  be  necessary  that  he 
should  retain  a  larger  portion,  or  what  comes  to  the  same  thing,  the 
price  of  a  larger  portion,  of  the  produce  of  the  land,  and  consequently 
that  lie  should  pay  less  rent  to  the  landlord.  The  final  payment  of 
this  rise  of  wages  would  in  this  case  fall  upon  the  landlord,  together 
ivith  the  additional  profits  of  the  farmer  who  had  advanced  it.  In  all 
cases,  a  direct  tax  upon  the  wages  of  labour  must,  in  the  long  run, 
occasion  both  a  greater  reduction  in  the  rent  of  land,  and  a  greater 
rise  in  the  price  of  manufactured  goods,  than  would  have  followed, 
from  the  proper  assessment  of  a  sum  equal  to  the  produce  of  the  tax, 
partly  upon  the  rent  of  land,  and  partly  upon  consumable  commo¬ 
dities.”  Yol.  iii.  p.  337.  In  this  passage  it  is  asserted  that  the 
additional  wages  paid  by  farmers  will  ultimately  fall  on  the  land¬ 
lords,  who  will  receive  a  diminished  rent ;  but  that  the  additional 
wages  paid  by  manufacturers  will  occasion  a  rise  in  the  price  of 
manufactured  goods,  and  will  therefore  fall  on  the  consumers  of 
those  commodities. 

Now,  suppose  a  society  to  consist  of  landlords,  manufacturers, 
farmers,  and  labourers,  the  labourers,  it  is  agreed,  would  be  recom¬ 
pensed  for  tlie  tax  ; — but  by  whom  ? — who  would  pay  that  portion 
which  did  not  fall  on  the  landlords  ? — the  manufacturers  could  pay 
no  part  of  it ;  for  if  the  price  of  their  commodities  should  rise  in 
proportion  to  the  additional  wages  they  paid,  they  would  be  in 
a  better  situation  after  than  before  the  tax.  If  the  clothier,  the 
hatter,  the  shoemaker,  &c.,  should  be  each  able  to  raise  the  price 
of  their  goods  10  percent., — supposing  10  per  cent,  to  recompense 
them  completely  for  the  additional  wages  they  paid, — if,  as  Adam 
Smith  says,  “  they  would  be  entitled  and  obliged  to  charge  the 
additional  wages  with  a  profit  upon  the  price  of  their  goods,”  they 
could  each  consume  as  much  as  before  of  each  other’s  goods,  and 
therefore  they  would  pay  nothing  towards  the  tax.  If  the  clothier 
paid  more  for  his  hats  and  shoes,  he  would  receive  more  for  his 
cloth,  and  if  the  hatter  paid  more  for  his  cloth  and  shoes,  he  would 
receive  more  for  his  hats.  All  manufactured  commodities,  then, 
would  be  bought  by  them  with  as  much  advantage  as  before,  and 
inasmuch  as  corn  would  not  be  raised  in  price,  which  is  Dr  Smith’s 
supposition,  whilst  they  had  an  additional  sum  to  lay  out  upon  it* 
purchase,  they  would  be  benefited,  but  not  injured  by  such  a  tax. 

If,  then,  neither  the  labourers  nor  the  manufacturers  would  con¬ 
tribute  towards  such  a  tax ;  if  the  farmers  would  be  also  recom¬ 
pensed  by  a  fall  of  rent,  landlords  alone  must  not  only  bear  its  whole 
weight,  but  they  must  also  contribute  to  the  increased  gains  of  the 
manufacturers.  To  do  this,  however,  they  should  consume  all  the 
manufactured  commodities  in  the  country,  for  the  additional  price 
charged  on  the  whole  mass  is  little  more  than  the  tax  originally 
imposed  on  the  labourers  in  manufactures. 

Now,  it  will  not  be  disputed  that  the  clothier,  the  hatter,  and  all 


TAXES  ON  WAGES. 


135 


other  manufacturers,  are  consumers  of  each  other’s  goods ;  it  will 
not  be  disputed  that  labourers  of  all  descriptions  consume  soap, 
cloth,  shoes,  candles,  and  various  other  commodities ;  it  is  there¬ 
fore  impossible  that  the  whole  weight  of  these  taxes  should  fall  on 
landlords  only. 

But  if  the  labourers  pay  no  part  of  the  tax,  and  yet  manufactured 
commodities  rise  in  price,  wages  must  rise,  not  only  to  compensate 
them  for  the  tax,  but  for  the  increased  price  of  manufactured  neces¬ 
saries,  which,  as  far  as  it  affects  agricultural  labour,  will  be  a  new 
cause  for  the  fall  of  rent;  and,  as  fir  as  it  affects  manufacturing 
labour,  for  a  further  rise  in  the  price  of  goods.  This  rise  in  the 
price  of  goods  will  again  operate  on  wages,  and  the  action  and 
re-action,  first  of  wages  on  goods,  and  then  of  goods  on  wages,  will 
be  extended  without  any  assignable  limits.  The  arguments  by 
which  this  theory  is  supported,  lead  to  such  absurd  conclusions, 
that  it  may  at  once  be  seen  that  the  principle  is  wholly  indefensible. 

All  the  effects  which  are  produced  on  the  profits  of  stock  and 
the  wages  of  labour,  by  a  rise  of  rent  and  a  rise  of  necessaries,  in 
the  natural  progress  of  society,  and  increasing  difficulty  of  produc¬ 
tion,  will  equally  follow  from  a  rise  of  wages  in  consequence  of 
taxation  ;  and,  therefore,  the  enjoyments  of  the  labourer,  as  well  as 
those  of  his  employers,  will  be  curtailed  by  the  tax ;  and  not  by 
this  tax  particularly,  but  by  every  other  which  should  raise  an 
equal  amount,  as  they  would  all  tend  to  diminish  the  fund  destined 
for  the  maintenance  of  labour. 

The  error  of  Adam  Smith  proceeds  in  the  first  place  from  sup¬ 
posing  that  all  taxes  paid  by  the  farmer  must  necessarily  fall  on 
the  landlord,  in  the  shape  of  a  deduction  from  rent.  On  this  sub¬ 
ject,  I  have  explained  myself  most  fully,  and  I  trust  that  it  has 
been  shown,  to  the  satisfaction  of  the  reader,  that  since  much 
capital  is  employed  on  the  land  which  pays  no  rent,  and  since  it  is 
the  result  obtained  by  this  capital  which  regulates  the  price  of  raw 
produce,  no  deduction  can  be  made  from  rent :  and,  consequently, 
either  no  remuneration  will  be  made  to  the  farmer  for  a  tax  on 
wages,  or  if  made,  it  must  be  made  by  an  addition  to  the  price  of 
raw  produce. 

If  taxes  press  unequally  on  the  farmer,  he  will  be  enabled  to 
raise  the  price  of  raw  produce,  to  place  himself  on  a  level  with 
those  who  carry  on  other  trades ;  but  a  tax  on  wages,  which  would 
not  affect  him  more  than  it  would  affect  any  other  trade,  could  not 
be  removed  or  compensated  by  a  high  price  of  raw  produce  ;  for 
the  same  reason  which  should  induce  him  to  raise  the  price  of 
corn,  namely,  to  remunerate  himself  for  the  tax,  would  induce  the 
clothier  to  raise  the  price  of  cloth,  the  shoemaker,  hatter,  and 
upholsterer,  to  raise  the  price  of  shoes,  hats,  and  furniture. 

If  they  could  all  raise  the  price  of  their  goods,  so  as  to  remu¬ 
nerate  themselves,  with  a  profit,  for  the  tax  :  as  they  are  all  con¬ 
sumers  of  each  other’s  commodities,  it  is  obvious  that  the  tax 


13G 


TAXES  ON  WAGES. 


could  never  be  paid  ;  for  who  would  be  the  contributors  if  all  were 
compensated  ? 

I  hope,  then,  that  I  have  succeeded  in  showing,  that  any  tax 
which  shall  have  the  effect  of  raising  wages,  will  be  paid  by  a 
diminution  of  profits,  and,  therefore,  that  a  tax  on  wages  is  in  fact 
a  tax  on  profits. 

This  principle  of  the  division  of  the  produce  of  labour  and  capital 
between  wages  and  profits,  which  I  have  attempted  to  establish, 
appears  to  me  so  certain,  that  excepting  in  the  immediate  effects,  I 
should  think  it  of  little  importance  whether  the  profits  of  stock,  or 
the  wages  of  labour,  were  taxed.  By  taxing  the  profits  of  stock, 
you  would  probably  alter  the  rate  at  which  the  funds  for  the  main¬ 
tenance  of  labour  increase,  and  wages  would  be  disproportioned  to 
the  state  of  that  fund,  by  being  too  high.  By  taxing  wages,  the 
reward  paid  to  the  labourer  would  also  be  disproportioned  to  the 
state  of  that  fund,  by  being  too  low.  In  the  one  case  by  a  tall,  and 
in  the  other  by  a  rise  in  money  wages,  the  natural  equilibrium 
between  profits  and  wages  would  be  restored.  A  tax  on  wages, 
then,  does  not  fall  on  the  landlord,  but  it  falls  on  the  profits  of 
stock  :  it  does  not  “  entitle  and  oblige  the  master  manufacturer  to 

O 

charge  it  with  a  profit  on  the  prices  of  his  goods,”  for  he  will  be 
unable  to  increase  their  price,  and  therefore  he  must  himself  wholly 
and  without  compensation  pay  such  a  tax.* 

If  the  effect  of  taxes  on  wages  be  such  as  I  have  described,  they 
do  not  merit  the  censure  cast  upon  them  by  Dr  Smith.  He  ob¬ 
serves  of  such  taxes,  “  These,  and  some  other  taxes  of  the  same 
kind,  by  raising  the  price  of  labour,  are  said  to  have  ruined  the 
greater  part  of  the  manufactures  of  Holland.  Similar  taxes,  though 
not  quite  so  heavy,  take  place  in  the  Milanese,  in  the  states  of 
Genoa,  in  the  duchy  of  Modena,  in  the  duchies  of  Parma,  Pla¬ 
centia,  and  Guastalla,  and  in  the  ecclesiastical  states.  A  French 
author  of  some  note,  has  proposed  to  reform  the  finances  of  his 
country,  by  substituting  in  the  room  of  other  taxes,  this  most 
ruinous  of  all  taxes.  £  There  is  nothing  so  absurd,’  says  Cicero, 
‘  which  has  not  sometimes  been  asserted  by  some  philosophers.’  ” 
And  in  another  place  he  says  :  “  taxes  upon  necessaries,  by  raising 
the  wages  of  labour,  necessarily  tend  to  raise  the  price  of  all 
manufactures,  and  consequently  to  diminish  the  extent  of  their  sale 
and  consumption.”  They  would  not  merit  this  censure,  even  if 
Dr  Smith’s  principle  were  correct,  that  such  taxes  would  enhance 
the  prices  of  manufactured  commodities  ;  for  such  an  effect  could 
be  only  temporary,  and  would  subject  us  to  no  disadvantage  in  our 

*  M.  Say  appears  to  have  imbibed  the  general  opinion  on  this  subject.  Speaking 
of  corn,  he  says,  “  thence  it  results,  that  its  price  influences  the  price  of  all  other 
commodities.  A  farmer,  a  manufacturer,  or  a  merchant,  employs  a  certain  number 
of  workmen,  who  all  have  occasion  to  consume  a  certain  quantity  of  corn.  If  the 
price  of  corn  rises,  he  is  obliged  to  raise,  in  an  equal  proportion,  the  price  of  his  pro¬ 
ductions.”  Yol.  i.  p.  255. 


TAXES  ON  WAGES. 


187 


foreign  trade.  If  any  cause  should  raise  the  price  of  a  few  manu¬ 
factured  commodities,  it  would  prevent  or  check  their  exportation  ; 
but  if  the  same  cause  operated  generally  on  all,  the  effect  would 
be  merely  nominal,  and  would  neither  interfere  with  their  relative 
value,  nor  in  any  degree  diminish  the  stimulus  to  a  trade  of  barter, 
which  all  commerce,  both  foreign  and  domestic,  really  is. 

I  have  already  attempted  to  show,  that  when  any  cause  raises 
the  prices  of  all  commodities,  the  effects  are  nearly  similar  to  a  fall 
in  the  value  of  money.  If  money  falls  in  value  all  commodities 
rise  in  price ;  and  if  the  effect  is  confined  to  one  country,  it  will 
affect  its  foreign  commerce  in  the  same  way  as  a  high  price  of 
commodities  caused  by  general  taxation;  and,  therefore,  in  examining 
the  effects  of  a  low  value  of  money  confined  to  one  country,  we  are  also 
examining  the  effects  of  a  high  price  of  commodities  confined  to  one 
country.  Indeed,  Adam  Smith  was  fully  aware  of  the  resemblance 
between  these  two  cases,  and  consistently  maintained  that  the  low 
value  of  money,  or,  as  he  calls  it,  of  silver  in  Spain,  in  consequence 
of  the  prohibition  against  its  exportation,  was  very  highly  prejudi¬ 
cial  to  the  manufactures  and  foreign  commerce  of  Spain.  “But 
that  degradation  in  the  value  of  silver,  which  being  the  effect  either 
of  the  peculiar  situation,  or  of  the  political  institutions  of  a  particular 
country,  takes  place  only  in  that  country,  is  a  matter  of  very 
great  consequence,  which,  far  from  tending  to  make  any  body  really 
richer,  tends  to  make  every  body  really  poorer.  The  rise  in  the 
money  price  of  all  commodities ,  which  is  in  this  case  peculiar  to  that 
country ,  tends  to  discourage  more  or  less  every  sort  of  industry 
which  is  carried  on  within  it,  and  to  enable  foreign  nations,  by 
furnishing  almost  all  sorts  of  goods  for  a  smaller  quantity  of  silver 
than  its  own  workmen  can  afford  to  do,  to  undersell  them  not  only 
in  the  foreign  but  even  in  the  home  market.”  Vol.  ii.  p.  278. 

One,  and  I  think  the  only  one,  of  the  disadvantages  of  a  low  value 
of  silver  in  a  country,  proceeding  from  a  forced  abundance,  has  been 
ably  explained  by  Dr  Smith.  If  the  trade  in  gold  and  silver  were 
free,  “  the  gold  and  silver  which  would  go  abroad  would  not  gc 
abroad  for  nothing,  but  would  bring  back  an  equal  value  of  goods 
of  some  kind  or  another.  Those  goods,  too,  would  not  be  all 
matters  of  mere  luxury  and  expense  to  be  consumed  by  idle 
people,  who  produce  nothing  in  return  for  their  consumption.  As 
the  real  wealth  and  revenue  of  idle  people  would  not  be  augmented 
by  this  extraordinary  exportation  of  gold  and  silver,  so  would 
neither  their  consumption  be  augmented  by  it.  Those  goods  would 
— probably  the  greater  part  of  them,  and  certainly  some  part  of 
them — consist  in  materials,  tools,  and  provisions,  for  the  employ¬ 
ment  and  maintenance  of  industrious  people,  who  would  reproduce 
with  a  profit  the  full  value  of  their  consumption.  A  part  of  the 
dead  stock  of  the  society  would  thus  be  turned  into  active  stock, 
and  would  put  into  motion  a  greater  quantity  of  industry  than  had 
been  employed  before.” 


133 


TAXES  OX  WAGES. 


By  not  allowing  a  free  trade  in  the  precious  metals  when  the 
prices  of  commodities  are  raised,  either  by  taxation,  or  by  the  influx 
of  the  precious  metals,  you  prevent  a  part  of  the  dead  stock  of  the 
society  from  being  turned  into  active  stock — you  prevent  a  greater 
quantity  of  industry  from  being  employed.  But  this  is  the  whole 
amount  of  tire  evil, — an  evil  never  felt  by  those  countries  where  the 
exportation  of  silver  is  either  allowed  or  connived  at. 

The  exchanges  between  countries  are  at  par  only  whilst  they 
have  precisely  that  quantity  of  currency  which,  in  the  actual  situa¬ 
tion  of  things,  they  should  have  to  carry  on  the  circulation  of  their 
commodities.  If  the  trade  in  the  precious  metals  were  perfectly 
free,  and  money  could  be  exported  without  any  expense  whatever, 
the  exchanges  could  be  no  otherwise  in  every  country  than  at  par. 
If  the  trade  in  the  precious  metals  were  perfectly  free, — if  they 
were  generally  used  in  circulation,  even  with  the  expenses  of  trans¬ 
porting  them,  the  exchange  could  never  in  any  of  them  deviate 
more  from  par  than  by  these  expenses.  These  principles,  I  believe, 
are  now  nowhere  disputed,  if  a  country  used  paper  money  not 
exchangeable  for  specie,  and,  therefore,  not  regulated  by  any  fixed 
standard,  the  exchanges  in  that  country  might  deviate  from  par,  in 
the  same  proportion  as  its  money  might  be  multiplied  beyond  that 
quantity  which  would  have  been  allotted  to  it  by  general  commerce, 
if  the  trade  in  money  had  been  free,  and  the  precious  metals  had 
been  used,  either  for  money,  or  for  the  standard  of  money. 

If  bv  the  general  operations  of  commerce,  10  millions  of  pounds 
sterling,  of  a  known  weight  and  fineness  of  bullion,  should  be  the 
portion  of  England,  and  10  millions  of  paper  pounds  were  substi¬ 
tuted,  no  effect  would  be  produced  on  the  exchange  ;  but  if  by  the 
abuse  of  the  power  of  issuing  paper  money,  11  millions  of  pounds 
should  be  employed  in  the  circulation,  the  exchange  would  be  9  per 
cent,  against  England ;  if  12  millions  were  employed,  the  exchange 
would  be  16  per  cent. ;  and  if  20  millions,  the  exchange  xvould  be 
50  per  cent,  against  England.  To  produce  this  effect  it  is  not, 
however,  necessary  that  paper  money  should  be  employed :  any 
cause  which  retains  in  circulation  a  greater  quantity  of  pounds  than 
would  have  circulated,  if  commerce  had  been  free,  and  the  precious 
metals  of  a  known  weight  and  fineness  had  been  used,  either  for 
money,  or  for  the  standard  of  money,  would  exactly  produce  the 
same  effects.  Suppose  that  by  clipping  the  money,  each  pound 
did  not  contain  the  quantitv  of  gold  or  silver  which  bv  law  it 
should  contain,  a  greater  number  of  such  pounds  might  be  em¬ 
ployed  in  the  circulation  than  if  they  were  not  clipped.  If  from 
each  pound  one-tenth  were  taken  away,  11  millions  of  such  pounds 
might  be  used  instead  of  10  :  if  two-tenths  were  taken  away,  12 
millions  might  be  employed;  and  if  one-half  were  taken  away,  20 
millions  might  not  be  found  superfluous.  If  the  latter  sum  were 
used  instead  of  10  millions,  every  commodity  in  England  would 
be  raised  to  double  its  former  price,  and  the  exchange  ivould  be 


TAXES  ON  WAGES. 


139 


50  per  cent,  against  England  ;  but  this  would  occasion  no  dis¬ 
turbance  in  foreign  commerce,  nor  discourage  the  manufacture  of 
any  one  commodity.  If,  for  example,  cloth  rose  in  England  from 
20 1.  to  40/.  per  piece,  we  should  just  as  freely  export  it  after  as 
before  the  rise,  for  a  compensation  of  50  per  cent,  would  be  made 
to  the  foreign  purchaser  in  the  exchange ;  so  that  with  20/.  of  his 
money,  he  could  purchase  a  bill  which  would  enable  him  to  pay  a 
debt  of  40/.  in  England.  In  the  same  manner,  if  he  exported  a 
commodity  which  cost  20/.  at  home,  and  which  sold  in  England  for 
40/.,  he  would  only  receive  20/.,  for  40/.  in  England  would  only 
purchase  a  bill  for  20/.  on  a  foreign  country.  The  same  effects 
would  follow  from  whatever  cause  20  millions  could  be  forced  to 
perform  the  business  of  circulation  in  England,  if  10  millions  only 
were  necessary.  If  so  absurd  a  lawr  as  the  prohibition  of  the  expor¬ 
tation  of  the  precious  metals  could  be  enforced,  and  the  consequence 
of  such  prohibition  were  to  force  11  millions  of  good  pounds,  fresh 
from  the  mint,  instead  of  10,  into  circulation,  the  exchange  would 
be  9  per  cent,  against  England;  if  12  millions,  16  per  cent.;  and 
if  20  millions,  50  per  cent,  against  England.  But  no  discourage¬ 
ment  would  be  given  to  the  manufactures  of  England ;  if  home 
commodities  sold  at  a  high  price  in  England,  so  would  foreign 
commodities ;  and  whether  they  were  high  or  low  would  be  of  little 
importance  to  the  foreign  exporter  and  importer,  whilst  he  would, 
on  the  one  hand,  be  obliged  to  allow  a  compensation  in  the  exchange 
when  his  commodities  sold  at  a  dear  rate,  and  would  receive  the 
same  compensation  when  he  was  obliged  to  purchase  English  com¬ 
modities  at  a  high  price.  The  sole  disadvantage,  then,  which  could 
happen  to  a  country  from  retaining,  by  prohibitory  laws,  a  greater 
quantity  of  gold  and  silver  in  circulation  than  would  otherwise 
remain  there,  would  be  the  loss  which  it  would  sustain  from  em¬ 
ploying  a  portion  of  its  capital  unproductiveiy  instead  of  employing 
it  productively.  In  the  form  of  money,  this  capital  is  productive 
of  no  profit ;  in  the  form  of  materials,  machinery,  and  food,  for 
which  it  might  be  exchanged,  it  would  be  productive  of  revenue, 
and  would  add  to  the  wealth  and  the  resources  of  the  state.  Thus, 
then,  I  hope,  I  have  satisfactorily  proved,  that  a  comparatively  low 
price  of  the  precious  metals,  in  consequence  of  taxation,  or  in  other 
words,  a  generally  high  price  of  commodities,  would  be  of  no  dis¬ 
advantage  to  a  state,  as  a  part  of  the  metals  would  be  exported, 
which,  by  raising  their  value,  would  again  lower  the  prices  of  com¬ 
modities.  And  further,  that  if  they  were  not  exported,  if  by 
prohibitory  laws  they  could  be  retained  in  a  country,  the  effect  on  the 
exchange  would  counterbalance  the  effect  of  high  prices.  If,  then, 
taxes  on  necessaries  and  on  wages  would  not  raise  the  prices  of  all 
commodities  on  which  labour  wras  expended,  they  cannot  be  con¬ 
demned  on  such  grounds  ;  and  moreover,  even  if  the  opinion  given 
by  Adam  Smith,  that  they  would  have  such  an  effect  were  well 
founded,  they  would  be  in  no  degree  injurious  on  that  account. 


140 


TAXES  OX  WAGES. 


They  would  be  objectionable  for  no  other  reason  than  those  which 
might  be  justly  urged  against  taxes  of  any  other  description. 

The  landlords,  as  such,  would  be  exempted  from  the  burden  of 
the  tax ;  but  as  far  as  they  directly  employed  labour  in  the  expen¬ 
diture  of  their  revenues,  by  supporting  gardeners,  menial  servants, 
&c.,  they  would  be  subject  to  its  operation. 

It  is  undoubtedly  true,  that  iC  taxes  upon  luxuries  have  no  tend¬ 
ency  to  raise  the  price  of  any  other  commodities,  except  that  of  the 
commodities  taxed  but  it  is  not  true,  “  that  taxes  upon  necessaries, 
by  raising  the  wages  of  labour,  necessarily  tend  to  raise  the  price  of 
all  manufactures.”  It  is  true  that  “  taxes  upon  luxuries  are  finally 
paid  by  the  consumers  of  the  commodities  taxed,  without  any  re¬ 
tribution.  They  fall  indifferently  upon  every  species  of  revenue, 
the  wages  of  labour,  the  profits  of  stock,  and  the  rent  of  land  but 
it  is  not  true,  u  that  taxes  upon  necessaries,  so  far  as  they  affect  the. 
labouring  poor,  are  finally  paid  partly  by  landlords  in  the  diminished 
rent  of  their  lands,  and  partly  by  rich  consumers,  whether  landlords 
or  others,  in  the  advanced  price  of  manufactured  goods  for,  so  far 
as  these  taxes  affect  the  labouring  -poor,  they  will  be  almost  wholly 
paid  by  the  diminished  profits  of  stock,  a  small  part  only  being  paid 
by  the  labourers  themselves  in  the  diminished  demand  for  labour, 
which  taxation  of  every  kind  has  a  tendency  to  produce. 

It  is  from  Dr  Smith’s  erroneous  view  of  the  effect  of  those  taxes, 
that  he  has  been  led  to  the  conclusion,  that  11  the  middling  and- 
superior  ranks  of  people,  if  they  understood  their  own  interest,  ought 
always  to  oppose  all  taxes  upon  the  necessaries  of  life,  as  well  as  all 
direct  taxes  upon  the  wages  of  labour.”  This  conclusion  follows 
from  his  reasoning,  that  the  final  payment  of  both  one  and  the 
other  falls  altogether  upon  themselves,  and  always  with  a  consider¬ 
able  overcharge.  They  fall  heaviest  upon  the  landlords,*  who 
always  pay  in  a  double  capacity ;  in  that  of  landlords,  by  the  re¬ 
duction  of  their  rent,  and  in  that  of  rich  consumers,  by  the  increase 
of  their  expense.  The  observation  of  Sir  Matthew  Decker,  that 
certain  taxes  are,  in  the  price  of  certain  goods,  sometimes  repeated 
and  accumulated  four  or  five  times,  is  perfectly  just  with  regard  to 
taxes  upon  the  necessaries  of  life.  In  the  price  of  leather,  for 
example,  you  must  pay,  not  only  for  the  tax  upon  the  leather  of 
your  own  shoes,  but  for  a  part  of  that  upon  those  of  the  shoemaker 
and  the  tanner.  You  must  pay  too,  for  the  tax  upon  the  salt,  upon 
the  soap,  and  upon  the  candles,  which  those  workmen  consume 
while  employed  in  your  service,  and  for  the  tax  upon  the  leather, 
which  the  salt-maker,  the  soap-maker,  and  the  candle-maker  con¬ 
sume,  Avhile  employed  in  their  service.” 

Now  as  Dr  Smith  does  not  contend  that  the  tanner,  the  salt- 
maker,  the  soap-maker,  and  the  candle-maker,  will  either  of  them 
be  benefited  by  the  tax  on  leather,  salt,  soap,  and  candles ;  and  as 

*  So  far  from  this  being  true,  they  would  scarcely  affect  the  landlords  and  stock¬ 
holder, 


TAXES  OX  WAGES. 


141 


it  is  certain,  that  Government  will  receive  no  more  than  the  tax 
imposed,  it  is  impossible  to  conceive,  that  more  can  be  paid  by  the 
public  upon  whomsoever  the  tax  may  fall.  The  rich  consumers 
may,  and  indeed  will,  pay  for  the  poor  consumer,  but  they  will  pay  no 
more  than  the  whole  amount  of  the  tax ;  and  it  is  not  in  the  nature 
of  things,  that  “  the  tax  should  be  repeated  and  accumulated  four  or 
five  times.” 

A  system  of  taxation  may  be  defective  :  more  may  be  raised  from 
the  people,  than  what  finds  its  way  into  the  coffers  of  the  State,  as 
a  part,  in  consequence  of  its  effect  on  prices,  may  possibly  be  received 
by  those  who  are  benefited  by  the  peculiar  mode  in  which  taxes  are 
laid.  Such  taxes  are  pernicious,  and  should  not  be  encouraged  ;  for 
it  may  be  laid  down  as  a  principle,  that  when  taxes  operate  justly, 
they  conform  to  the  first  of  Dr  Smith's  maxims,  and  raise  from  the 
people  as  little  as  possible  beyond  what  enters  into  the  public  trea¬ 
sury  of  the  State.  M.  Say  says,  “  others  offer  plans  of  finance,  and 
propose  means  for  filling  the  coffers  of  the  sovereign,  without  any 
charge  to  his  subjects.  But  unless  a  plan  of  finance  is  of  the  nature 
of  a  commercial  undertaking,  it  cannot  give  to  Government  more 
than  it  takes  away,  either  from  individuals  or  from  Government 
itself,  under  some  other  form.  Somethina’  cannot  be  made  out  of 
nothing,  by  the  stroke  of  a  wand.  In  whatever  way  an  operation 
may  be  disguised,  whatever  forms  we  may  constrain  a  value  to  take, 
whatever  metamorphosis  we  may  make  it  undergo,  we  can  only  have 
a  value  by  creating  it,  or  by  taking  it  from  others.  The  very  best 
of  all  plans  of  finance  is  to  spend  little,  and  the  host  of  all  taxes  is,  that 
which  is  the  least  in  amount.” 

Dr~'~Kmfth — rnrifoiiTiTy,  and  I  think  justly,  contends,  that  the 
labouring  classes  cannot  materially  contribute  to  the  burdens  of  the 
State.  A  tax  on  necessaries,  or  on  wages,  will  therefore  be  shifted 
from  the  poor  to  the  rich  :  if  then  the  meaning  of  Dr  Smith  is, 
“  that  certain  taxes  are  in  the  price  of  certain  goods  sometimes 
repeated,  and  accumulated  four  or  five  times,”  for  the  purpose  only 
of  accomplishing  this  end,  namely,  the  transference  of  the  tax  from 
the  poor  to  the  rich,  they  cannot  he  liable  to  censure  on  that 
account. 

Suppose  the  just  share  of  the  taxes  of  a  rich  consumer  to  be 
100f.,  and  that  he  would  pay  it  directly,  if  the  tax  were  laid  on  in¬ 
come,  on  wine,  or  on  any  other  luxury,  he  would  suffer  no  injury 
if,  by  the  taxation  of  necessaries,  he  should  be  only  called  upon  for 
the  payment  of  25 Z.,  as  far  as  his  own  consumption  of  necessaries, 
and  that  of  his  family  was  concerned;  but  should  be  required  to 
repeat  this  tax  three  times,  by  paying  an  additional  price  for  other 
commodities  to  remunerate  the  labourers,  or  their  employers,  for 
the  tax  which  they  have  been  called  upon  to  advance.  Even  in 
that  case  the  reasoning  is  inconclusive  :  for  if  there  be  no  more  paid 
than  what  is  required  by  Government :  of  what  importance  can  it, 
be  to  the  rich  consumer,  whether  he  pay  the  tax  directly,  by  paying 


142 


TAXES  OX  WAGES. 


an  increased  price  for  an  object  of  luxury,  or  indirectly,  by  paying 
an  increased  price  for  the  necessaries  and  other  commodities  he 
consumes  ?  If  more  be  not  paid  by  the  people  than  what  is  re¬ 
ceived  by  Government,  the  rich  consumer  will  only  pay  his  equitable 
share ;  if  more  is  paid,  Adam  Smith  should  have  stated  by  whom 
it  is  received ;  but  his  whole  argument  is  founded  in  error,  for  the 
prices  of  commodities  would  not  be  raised  by  such  taxes. 

M.  Say  does  not  appear  to  me  to  have  consistently  adhered  to 
the  obvious  principle,  which  I  have  quoted  from  his  able  work ;  for 
in  the  next  page,  speaking  of  taxation,  he  says,  “  When  it  is  pushed 
too  far,  it  produces  this  lamentable  effect,  it  deprives  the  contri¬ 
butor  of  a  portion  of  his  riches,  without  enriching  the  State.  This 
is  what  we  may  comprehend,  if  we  consider  that  every  man’s  power 
of  consuming,  whether  productively  or  not,  is  limited  by  his  income. 
He  cannot  then  be  deprived  of  a  part  of  his  income,  without  being 
obliged  proportionally  to  reduce  his  consumption.  Hence  arises  a 
diminution  of  demand  for  those  goods,  which  he  no  longer  consumes, 
and  particularly  for  those  on  which  the  tax  is  imposed.  From  this 
diminution  of  demand,  there  results  a  diminution  of  production,  and 
consequently  of  taxable  commodities.  The  contributor  then  will 
lose  a  portion  of  his  enjoyments ;  the  producer  a  portion  of  his 
profits  ;  and  the  treasury,  a  portion  of  its  receipts.” 

M.  Say  instances  the  tax  on  salt  in  France,  previous  to  the 
revolution  ;  which,  he  says,  diminished  the  production  of  salt  by 
one  half.  If,  however,  less  salt  was  consumed,  less  capital  was 
employed  in  producing  it ;  and,  therefore,  though  the  producer 
would  obtain  less  profit  on  the  production  of  salt,  he  would  obtain 
more  on  the  production  of  other  things.  If  a  tax,  however  burden¬ 
some  it  may  be,  falls  on  revenue,  and  not  on  capital,  it  does  not 
diminish  demand,  it  only  alters  the  nature  of  it.  It  enables 
Government  to  consume  as  much  of  the  produce  of  the  land  and 
labour  of  the  country,  as  was  before  consumed  by  the  individuals 
who  contribute  to  the  tax,  an  evil  sufficiently  great  without  over¬ 
charging  it.  If  my  income  is  1000Z.  per  annum,  and  I  am  called 
upon  for  100Z.  per  annum  for  a  tax,  I  shall  only  be  able  to  demand 
nine-tenths  of  the  quantity  of  goods,  which  I  before  consumed,  but 
I  enable  Government  to  demand  the  other  tenth.  If  the  commo¬ 
dity  taxed  be  corn,  it  is  not  necessary  that  my  demand  for  corn 
should  diminish,  as  I  may  prefer  to  pay  100Z.  per  annum  more  for 
my  corn,  and  to  the  same  amount  abate  in  my  demand  for  wine, 
furniture,  or  any  other  luxury.*  Less  capital  will  consequently  be 
employed  in  the  wine  or  upholstery  trade,  but  more  will  be  em- 

*  M.  Say  says,  “  that  the  tax  added  to  the  price  of  a  commodity,  raises  its  price. 
Every  increase  in  the  price  of  a  commodity,  necessarily  reduces  the  number  of  those 
who  are  able  to  purchase  it,  or  at  least  the  quantity  they  will  consume  of  it.”  This  is 
by  no  means  a  necessary  consequence.  I  do  not  believe,  that  if  bread  were  taxed, 
ibe  consumption  of  bread  would  be  diminished,  more  than  if  cloth,  wine,  or  soap  were 
taxed. 


TAXES  OX  WAGES. 


143 

ployed  in  manufacturing  those  commodities,  on  which  the  taxes 
levied  by  Government  will  be  expended. 

M.  Say  says  that  M.  Turgot,  by  reducing  the  market  dues  on 
fish  ( les  droits  d’ entree  et  de  halle  sur  la  maree )  in  Paris  one  half, 
did  not  diminish  the  amount  of  their  produce,  and  that  conse¬ 
quently,  the  consumption  of  fish  must  have  doubled.  lie  infers 
from  this,  that  the  profits  of  the  fisherman  and  those  engaged  in 
the  trade,  must  also  have  doubled,  and  that  the  income  of  the 
country  must  have  increased,  by  the  whole  amount  of  these  in¬ 
creased  profits ;  and  by  giving  a  stimulus  to  accumulation,  must 
have  increased  the  resources  of  the  State.* 

Without  calling  in  question  the  policy  which  dictated  this  altera¬ 
tion  of  the  tax,  I  have  my  doubts,  whether  it  gave  any  great 
stimulus  to  accumulation.  If  the  profits  of  the  fisherman  and 
others  engaged  in  the  trade,  were  doubled  in  consequence  of  more 
fish  being  consumed,  capital  and  labour  must  have  been  withdrawn 
from  other  occupations  to  engage  them  in  this  particular  trade. 
But  in  those  occupations  capital  and  labour  were  productive  of 
profits,  which  must  have  been  given  up  when  they  were  withdrawn. 
The  ability  of  the  country  to  accumulate,  was  only  increased  by 
the  difference  between  the  profits  obtained  in  the  business  in  which 
the  capital  was  newly  engaged,  and  those  obtained  in  that  from 
which  it  was  withdrawal. 

Whether  taxes  be  taken  from  revenue  or  capital,  they  diminish 
the  taxable  commodities  of  the  State.  If  I  cease  to  expend  100k 
on  wine,  because  by  paying  a  tax  of  that  amount  I  have  enabled 
Government  to  expend  100k  instead  of  expending  it  myself,  one 
hundred  pounds’  worth  of  goods  are  necessarily  withdrawn  from  the 
list  of  taxable  commodities.  If  the  revenue  of  the  individuals  of  a 
country  be  10  millions,  they  will  have  at  least  10  millions’  worth  of 
taxable  commodities.  If,  by  taxing  some,  one  million  be  transferred 
to  the  disposal  of  Government,  their  revenue  will  still  be  nominally 
10  millions,  but  they  will  remain  with  only  nine  millions’  worth  of 
taxable  commodities.  There  are  no  circumstances  under  which 
taxation  does  not  abridge  tbc  enjoyments  of  those  on  whom  the 
taxes  ultimately  fall,  and  no  means  by  which  those  enjoyments  can 
again  be  extended  but  the  accumulation  of  new  revenue. 

Taxation  can  never  be  so  equally  applied  as  to  operate  in  the 
same  proportion  on  the  value  of  all  commodities,  and  still  to  pre¬ 
serve  them  at  the  same  relative  value.  It  frequently  operates  very 
differently  from  the  intention  of  the  legislature,  by  its  indirect 


*  The  following  remark  of  the  same  author  appears  to  me  equally  erroneous : 
“  When  a  high  duty  is  laid  on  cotton,  the  production  of  all  those  goods  of  which  cotton 
is  the  basis  is  diminished.  If  the  total  value  added  to  cotton  in  its  various  manufac¬ 
tures,  in  a  particular  country,  amounted  to  100  millions  of  francs  per  annum,  and 
the  effect  of  the  tax  was,  to  diminish  the  consumption  one  half,  then  the  tax  would 
deprive  that  country  every  year  of  50  millions  of  francs,  in  addition  to  the  sum  received 
by  Government.”  Vol.  ii.  p.  314 


114 


TAXES  ON  WAGES. 


effects.  e  have  already  seen  that  the  effect  of  a  direct  tax  on 
corn  and  raw  produce  is,  if  money  be  also  produced  in  the  country, 
to  raise  the  price  of  all  commodities  in  proportion  as  raw  produce 
enters  into  their  composition,  and  thereby  to  destroy  the  natural 
relation  which  previously  existed  between  them.  Another  indirect 
effect  is,  that  it  raises  wages,  and  lowers  the  rate  of  profits ;  and 
we  have  also  seen,  in  another  part  of  this  work,  that  the  effect  of  a 
rise  of  wages  and  a  fall  of  profits  is  to  lower  the  money  prices  of 
those  commodities  which  are  produced  in  a  greater  degree  by  the 
employment  of  fixed  capital. 

That  a  commodity,  when  taxed,  can  no  longer  be  so  profitable 
exported,  is  so  well  understood,  that  a  drawback  is  frequently 
allowed  on  its  exportation,  and  a  duty  laid  on  its  importation.  If 
these  drawbacks  and  duties  be  accurately  laid,  not  only  on  the 
commodities  themselves,  but  on  all  which  they  may  indirectly  affect, 
then,  indeed,  there  will  be  no  disturbance  in  the  value  of  the  precious 
metals.  Since  we  could  as  readily  export  a  commodity  after  being 
taxed  as  before,  and  since  no  peculiar  facility  would  be  given  to 
importation,  the  precious  metals  would  not,  more  than  before,  enter 
into  the  list  of  exportable  commodities. 

Of  all  commodities  none  are  perhaps  so  proper  for  taxation  as 
those  which,  either  by  the  aid  of  nature  or  art,  are  produced  with 
peculiar  facility.  With  respect  to  foreign  countries,  such  com¬ 
modities  may  be  classed  undci  the  head  of  those  which  are  not 
regulated  in  their  price  by  the  quantity  of  labour  bestowed,  but 
rather  by  the  caprice,  the  tastes,  and  the  power  of  the  purchasers. 
If  England  had  more  productive  tin  mines  than  other  countries,  or 
if,  from  superior  machinery  or  fuel,  she  had  peculiar  facilities  in 
manufacturing  cotton  goods,  the  prices  of  tin  and  of  cotton  goods 
would  still  in  England  be  regulated  by  the  comparative  quantity  of 
labour  and  capital  required  to  produce  them,  and  the  competition 
of  our  merchants  would  make  them  very  little  dearer  to  the  foreign 
consumer.  Our  advantage  in  the  production  of  these  commodities 
might  be  so  decided,  that  probably  they  could  bear  a  very  great 
additional  price  in  the  foreign  market,  -without  very  materially 
diminishing  their  consumption.  This  price  they  never  could  attain, 
whilst  competition  was  free  at  home,  by  any  other  means  but  by  a 
tax  on  their  exportation.  This  tax  would  fall  wholly  on  foreign 
consumers,  and  part  of  the  expenses  of  the  Government  of  England 
would  be  defrayed  by  a  tax  on  the  land  and  labour  of  other  coun¬ 
tries.  The  tax  on  tea,  which  at  present  is  paid  by  the  people  of 
England,  and  goes  to  aid  the  expenses  of  the  Government  of  England, 
might,  if  laid  in  China  on  the  exportation  of  the  tea,  be  diverted  to 
the  payment  of  the  expenses  of  the  Government  of  China. 

Taxes  on  luxuries  have  some  advantage  over  taxes  on  necessaries. 
They  are  generally  paid  from  income,  and  therefore  do  not  diminish 
the  productive  capital  of  the  country.  If  wine  were  much  raised  in 
price  in  consequence  of  taxation,  it  is  probable  that  a  man  would 


TAXES  OX  WAGES. 


145 


rather  forego  the  enjoyments  of  wine  than  make  any  important 
encroachments  on  his  capital  to  be  enabled  to  purchase  it.  They 
are  so  identified  with  price  that  the  contributor  is  hardly  aware  that 
he  is  paying  a  tax.  But  they  have  also  their  disadvantages.  First, 
they  never  reach  capital,  and  on  some  extraordinary  occasions  it 
may  be  expedient  that  even  capital  should  contribute  towards  the 
public  exigencies ;  and,  secondly,  there  is  no  certainty  as  to  the 
amount  of  the  tax,  for  it  may  not  reach  even  income.  A  man  intent 
on  saving  will  exempt  himself  from  a  tax  on  wine  by  giving  up  the 
use  of  it.  The  income  of  the  country  may  be  undiminished,  and 
yet  the  state  may  be  unable  to  raise  a  shilling  by  the  tax. 

Whatever  habit  has  rendered  delightful  will  be  relinquished  with 
reluctance,  and  will  continue  to  be  consumed  notwithstanding  a 
very  heavy  tax  ;  but  this  reluctance  has  its  limits,  and  experience 
every  day  demonstrates  that  an  increase  in  the  nominal  amount  of 
taxation  often  diminishes  the  produce.  One  man  will  continue  to 
drink  the  same  quantity  of  wine,  though  the  price  of  every  bottle 
should  be  raised  three  shillings,  who  would  yet  relinquish  the  use 
of'  wine  rather  than  pay  four.  Another  will  be  content  to  pay  four, 
yet  refuse  to  pay  five  shillings.  The  same  may  be  said  of  other 
taxes  on  luxuries  :  many  would  pay  a  tax  of  5k  for  the  enjoyment 
which  a  horse  affords,  w  ho  would  not  pay  10k  or  20k  It  is  not 
because  they  cannot  pay  more  that  they  give  up  the  use  of  wine 
and  of  horses,  but  because  they  will  not  pay  more.  Every  man  has 
some  standard  in  his  own  mind  by  which  he  estimates  the  value  of 
his  enjoyments,  but  that  standard  is  as  various  as  the  human  cha¬ 
racter.  A  country  whose  financial  situation  has  become  extremely 
artificial,  by  the  mischievous  policy  of  accumulating  a  large  national 
debt,  and  a  consequently  enormous  taxation,  is  particularly  exposed 
to  the  inconvenience  attendant  on  this  mode  of  raising  taxes.  After 
visiting  with  a  tax  the  whole  round  of  luxuries  ;  after  laying  horses, 
carriages,  wine,  servants,  and  all  the  other  enjoyments  of  the  rich 
under  contribution  ;  a  minister  is  induced  to  have  recourse  to  more 
direct  taxes,  such  as  income  and  property  taxes,  neglecting  the 
golden  maxim  of  M.  Say,  “  that  the  very  best  of  all  plans  of  finance 
is  to  spend  little,  and  the  best  of  all  taxes  is  that  which  is  the  least 
in  amount.” 


I  146  ! 


CHAPTER  XVII. 


TAXES  ON  OTHER  COMMODITIES  THAN  RAW  PRODUCE. 

On  the  same  principle  that  a  tax  on  corn  would  raise  the  price  of 
corn,  a  tax  on  any  other  commodity  would  raise  the  price  of  that 
commodity.  If  the  commodity  did  not  rise  by  a  sum  ecjual  to  the 
tax,  it  would  not  give  the  same  profit  to  the  producer  which  he 
had  before,  and  he  would  remove  his  capital  to  some  other  employ¬ 
ment. 

The  taxing  of  all  commodities,  whether  they  be  necessaries  or 
luxuries,  will,  while  money  remains  at  an  unaltered  value,  raise  their 
prices  by  a  sum  at  least  equal  to  the  tax.*  A  tax  on  the  manufac¬ 
tured  necessaries  of  the  labourer  would  have  the  same  effect  on 
wages  as  a  tax  on  corn,  which  differs  from  other  necessaries  only  by 
being  the  first  and  most  important  on  the  list ;  and  it  would  pro¬ 
duce  precisely  the  same  effects  on  the  profits  of  stock  and  foreign 
trade.  But  a  tax  on  luxuries  would  have  no  other  effect  than  to 
raise  their  price.  It  would  fall  wholly  on  the  consumer,  and  could 
neither  increase  wages  nor  lower  profits. 

Taxes  which  are  levied  on  a  country  for  the  purpose  of  support¬ 
ing  war,  or  for  the  ordinary  expenses  of  the  State,  and  which  arc 
chiefly  devoted  to  the  support  of  unproductive  labourers,  are  taken 
from  the  productive  industry  of  the  country :  and  every  saving 
which  can  be  made  from  such  expenses  will  be  generally  added  to 
the  income,  if  not  to  the  capital  of  the  contributors.  When,  for 
the  expenses  of  a  year’s  war,  twenty  millions  are  raised  by  means 
of  a  loan,  it  is  the  twenty  millions  which  are  withdrawn  from  the 


*  It  is  observed  by  M.  Say,  “  that  a  manufacturer  is  not  enabled  to  make  the  con¬ 
sumer  pay  the  whole  tax  levied  on  his  commodity,  because  its  increased  price  will 
diminish  its  consumption.”  Should  this  be  the  case,  should  the  consumption  be  dimi¬ 
nished,  null  not  the  supply  also  speedily  be  diminished?  Why  should  the  manufac¬ 
turer  continue  in  the  trade,  if  his  profits  are  below  the  general  level  ?  M.  Say  appears 
here  also  to  have  forgotten  the  doctrine  which  he  elsewhere  supports,  “  that  the  cost 
of  production  determines  the  price,  below  which  commodities  cannot  fall  for  any 
length  of  time,  because  production  •would  be  then  either  suspended  or  diminished.”  — 
Vol.  ii.  p.  20. 

“  The  tax  in  this  case  falls  then  partly  on  the  consumer,  who  is  obliged  to  give 
more  for  the  commodity  taxed,  and  partly  on  the  producer,  who,  after  deducting  the 
tax,  will  receive  less.  The  public  treasury  will  be  benefited  by  what  the  purchaser 
pays  in  addition,  and  also  by  the  sacrifice  which  the  producer  is  obliged  to  make  of  a 
part  of  his  profits.  It  is  the  effort  of  gunpowder,  which  acts  at  the  same  time  on  the 
bullet  which  it  projects,  and  on  the  gun  which  it  causes  to  recoil.”— Vol.  ii.  p.  333. 


TAXES  OX  OTHER  COMMODITIES  THAN  RAW  PRODUCE.  147 


productive  capital  of  the  nation.  The  million  per  annum  which  is 
raised  by  taxes  to  pay  the  interest  of  this  loan,  is  merely  transferred 
from  those  who  pay  it  to  those  who  receive  it,  from  the  contributor 
to  the  tax  to  the  national  creditor.  The  real  expense  is  the  twenty 
millions,  and  not  the  interest  which  must  be  paid  for  it.*  "Whether 
the  interest  be  or  be  not  paid,  the  country  will  neither  be  richer 
nor  poorer.  Government  might  at  once  have  required  the  twenty 
millions  in  the  shape  of  taxes  ;  in  which  case  it  would  not  have 
been  necessary  to  raise  annual  taxes  to  the  amount  of  a  million. 
This,  however,  would  not  have  changed  the  nature  of  the  transac¬ 
tion.  An  individual,  instead  of  being  called  upon  to  pay  100/.  per 
annum,  might  have  been  obliged  to  pay  2000/.  once  for  all.  It 
might  also  have  suited  his  convenience  rather  to  borrow  this  2000/., 
and  to  pay  100/.  per  annum  for  interest  to  the  lender,  than  to  spare 
the  larger  sum  from  his  own  funds.  In  one  case,  it  is  a  private 
transaction  between  A  and  B,  in  the  other  Government  guarantees 
to  B  the  payment  of  interest  to  be  equally  paid  by  A.  If  the 
transaction  had  been  of  a  private  nature,  no  public  record  would 
be  kept  of  it,  and  it  would  be  a  matter  of  comparative  indifference 
to  the  country  whether  A  faithfully  performed  his  contract  to  B, 
or  unjustly  retained  the  100/.  per  annum  in  his  own  possession. 
The  country  would  have  a  general  interest  in  the  faithful  performance 
of  a  contract,  but  with  respect  to  the  national  wealth,  it  would  have 
no  other  interest  than  whether  A  or  B  would  make  this  100/.  most 
productive ;  but  on  this  question  it  would  neither  have  the  right 
nor  the  ability  to  decide.  It  might  be  possible,  that  if  A  retained 
it  for  his  own  use,  he  might  squander  it  unprofitably,  and  if  it  were 
paid  to  B,  he  might  add  it  to  his  capital,  and  employ  it  productively. 
And  the  converse  would  also  be  possible ;  B  might  squander  it, 
and  A  might  employ  it  productively.  With  a  view  to  wealtli  only, 
it  might  be  equally  or  more  desirable  that  A  should  or  should  not 
pay  it ;  but  the  claims  of  justice  and  good  faith,  a  greater  utility, 
are  not  to  be  compelled  to  yield  to  those  of  a  less  ;  and  accordingly, 
if  the  State  were  called  upon  to  interfere,  the  courts  of  justice  would 
oblige  A  to  perform  his  contract.  A  debt  guaranteed  by  the  nation, 
differs  in  no  respect  from  the  above  transaction.  Justice  and  good 


*  “  Melon  sftys,  that  the  debts  of  a  nation  are  debts  due  from  the  right  hand  to  the 
left,  by  which  the  body  is  not  weakened.  It  is  true  that  the  general  wealth  is  not 
diminished  by  the  payment  of  the  interest  on  arrears  of  the  debt :  The  dividends  arc 
a  value  which  passes  from  the  hand  of  the  contributor  to  the  national  creditor : 
Whether  it  be  the  national  creditor  or  the  contributor  who  accumulates  or  consumes 
it,  is,  I  agree,  of  little  importance  to  the  society ;  but  the  principal  of  the  debt — what 
lias  become  of  that?  It  exists  no  more.  The  consumption  which  has  followed  the 
loan  has  annihilated  a  capital  which  will  never  yield  any  further  revenue.  The  so¬ 
viet}’  is  deprived  not  of  the  amount  of  interest,  since  that  passes  from  one  hand  to 
the  other,  but  of  the  revenue  from  a  destroyed  capital.  This  capital,  if  it  had  been 
employed  productively  by  him  who  lent  it  to  the  State,  would  equally  have  yielded 
him  an  income,  but  that  income  would  have  been  derived  from  a  real  production,  and 
would  not  have  been  furnished  from  the  pocket  of  a  fellow  citizen.” — Say,  vol.  ii. 
p.  357.  This  is  both  conceived  and  expressed  in  the  true  spirit  of  the  science. 


148 


TAXES  ON  OTHER  COMMODITIES 


faith  demand  that  the  interest  of  the  national  debt  should  continue 
to  he  paid,  and  that  those  who  have  advanced  their  capitals  for  the 
general  benefit,  should  not  be  required  to  forego  their  equitable 
claims,  on  the  plea  of  expediency. 

But  independently  of  this  consideration,  it  is  by  no  means  certain 
that  political  utility  would  gain  anything  by  the  sacrifice  of  political 
integrity ;  it  does  by  no  means  follow  that  the  party  exonerated 
from  the  payment  of  the  interest  of  the  national  debt  would  employ 
it  more  productively  than  those  to  whom  indisputably  it  is  due. 
By  cancelling  the  national  debt,  one  man’s  income  might  be  raised 
from  1000/.  to  1,500/.,  but  another  man’s  would  be  lowered  from 
1,500/.  to  1000/.  These  two  men’s  incomes  now  amount  to  2,500/.; 
they  would  amount  to  no  more  then.  If  it  be  the  object  of  Govern¬ 
ment  to  raise  taxes,  there  would  be  precisely  the  same  taxable 
capital  and  income  in  one  case  as  in  the  other.  It  is  not,  then,  by 
the  payment  of  the  interest  on  the  national  debt  that  a  country  is 
distressed,  nor  is  it  by  the  exoneration  from  payment  that  it  can  be 
relieved.  It  is  only  by  saving  from  income,  and  retrenching  in 
expenditure,  that  the  national  capital  can  be  increased  ;  and  neither 
the  income  would  be  increased,  nor  the  expenditure  diminished  by 
the  annihilation  of  the  national  debt.  It  is  by  the  profuse  expendi¬ 
ture  of  Government  and  of  individuals,  and  by  loans,  that  the 
country  is  impoverished ;  every  measure,  therefore,  which  is  calcu¬ 
lated  to  promote  public  and  private  economy  will  relieve  the  public 
distress  ;  but  it  is  error  and  delusion  to  suppose  that  a  real  national 
difficulty  can  be  removed  by  shifting  it  from  the  shoulders  of  one 
class  of  the  community,  who  justly  ought  to  bear  it,  to  the  shoulders 
of  another  class,  who,  upon  every  principle  of  equity,  ought  to  bear 
no  more  than  their  share. 

From  what  I  have  said,  it  must  not  be  inferred  that  I  consider 
the  system  of  borrowing  as  the  best  calculated  to  defray  the  extra¬ 
ordinary  expenses  of  the  State.  It  is  a  system  which  tends  to  make 
us  less  thrifty — to  blind  us  to  our  real  situation.  If  the  expenses 
of  a  war  be  40  millions  per  annum,  and  the  share  which  a  man 
would  have  to  contribute  towards  that  annual  expense  were  100/., 
he  would  endeavour,  on  being  at  once  called  upon  for  his  portion, 
to  save  speedilv  the  100/.  from  his  income.  By  the  system  of  loans, 
he  is  called  upon  to  pay  only  the  interest  of  this  100/.,  or  51.  per 
annum,  and  considers  that  he  does  enough  by  saving  this  51.  from 
his  expenditure,  and  then  deludes  himself  with  the  belief  that  he  is 
as  rich  as  before.  The  whole  nation,  by  reasoning  and  acting  in 
this  manner,  save  only  the  interest  of  40  millions,  or  two  millions ; 
and  thus,  not  only  lose  all  the  interest  or  profit  which  40  millions 
of  capital,  employed  productively,  would  afford,  but  also  38  millions, 
the  difference  between  their  savings  and  expenditure.  If,  as  I 
before  observed,  each  man  had  to  make  his  own  loan,  and  contribute 
his  full  proportion  to  the  exigencies  of  the  State,  as  soon  as  the  war 
ceased,  taxation  would  cease,  ana  we  should  immediately  fall  into 


THAN  1IAW  PRODUCE. 


149 


a  natural  state  of  prices.  Out  of  his  private  funds,  A  might  have 
to  pay  to  B  interest  for  the  money  he  borrowed  of  him  during  the 
war,  to  enable  him  to  pay  his  quota  of  the  expense ;  but  with  this 
the  nation  would  have  no  concern. 

A  country  which  has  accumulated  a  large  debt,  is  placed  in  a 
most  artificial  situation  ;  and  although  the  amount  of  taxes,  and  the 
increased  price  of  labour,  may  not,  and  I  believe  does  not,  place  it 
under  any  other  disadvantage  with  respect  to  foreign  countries, 
except  the  unavoidable  one  of  paying  those  taxes,  yet  it  becomes 
the  interest  of  every  contributor  to  withdraw  his  shoulder  from  the 
burthen,  and  to  shift  this  payment  from  himself  to  another;  and  the 
temptation  to  remove  himself  and  his  capital  to  another  country, 
where  he  will  be  exempted  from  such  burthens,  becomes  at  lasr 
irresistible,  and  overcomes  the  natural  reluctance  which  every  man 
feels  to  quit  the  place  of  his  birth,  and  the  scene  of  his  early  associ¬ 
ations.  A  country  which  has  involved  itself  in  the  difficulties 
attending  this  artificial  system,  would  act  wisely  by  ransoming  itself 
from  them,  at  the  sacrifice  of  any  portion  of  its  property  which 
might  be  necessary  to  redeem  its  debt.  That  which  is  wise  in  an 
individual,  is  wise  also  in  a  nation.  A  man  who  has  10,000/.,  pay¬ 
ing  him  an  income  of  500/.,  out  of  which  he  has  to  pay  100/.  per 
annum  towards  the  interest  of  the  debt,  is  really  worth  only  8000/., 
and  would  be  equally  rich,  whether  he  continued  to  pay  100/.  per 
annum,  or  at  once,  and  for  only  once,  sacrificed  2000/.  But  where, 
it  is  asked,  would  be  the  purchaser  of  the  property  which  he  must 
sell  to  obtain  this  2000/.?  The  answer  is  plain  :  the  national  creditor, 
who  is  to  receive  this  2000/.,  will  want  an  investment  for  his  money, 
and  will  be  disposed  either  to  lend  it  to  the  landholder,  or  manu¬ 
facturer,  or  to  purchase  from  them  a  part  of  the  property  of  which 
they  have  to  dispose.  To  such  a  payment  the  stockholders  them¬ 
selves  would  largely  contribute.  This  scheme  has  been  often 
recommended,  but  we  have,  1  fear,  neither  wisdom  enough,  nor 
virtue  enough,  to  adopt  it.  It  must,  however,  be  admitted,  that 
during  peace,  our  unceasing  efforts  should  be  directed  towards  pay¬ 
ing  off  that  part  of  the  debt  which  has  been  contracted  during  war ; 
and  that  no  temptation  of  relief,  no  desire  of  escape  from  present, 
and  I  hope  temporary  distresses,  should  induce  us  to  relax  in  our 
attention  to  that  great  object. 

No  sinking  fund  can  be  efficient  for  the  purpose  of  diminishing 
the  debt,  if  it  be  not  derived  from  the  excess  of  the  public  revenue 
over  the  public  expenditure.  It  is  to  be  regretted,  that  the  sinking 
fund  in  this  country  is  only  such  in  name ;  for  there  is  no  excess 
of  revenue  above  expenditure.  It  ought,  bv  economy,  to  be  made 
what  it  is  professed  to  be,  a  really  efficient  fund  for  the  payment 
of  the  debt.  If,  on  the  breaking  out  of  any  future  war,  we  shall 
not  have  very  considerably  reduced  our  debt,  one  of  two  things 
must  happen,  either  the  whole  expenses  of  that  war  must  be  defrayed 
by  taxes  raised  from  year  to  year,  or  we  must,  at  the  end  of  that  war. 


150 


TAXES  OX  OTHER  COMMODITIES 


if  not  before,  submit  to  a  national  bankruptcy ;  not  that  we  shall  be 
unable  to  bear  any  large  additions  to  the  debt :  it  would  be  diffi¬ 
cult  to  set  limits  to  the  powers  of  a  great  nation  ;  but  assuredly 
there  are  limits  to  the  price,  which  in  the  form  of  perpetual  taxa¬ 
tion,  individuals  will  submit  to  pay  for  the  privilege  merely  of 
living  in  their  native  country.* 

When  a  commodity  is  at  a  monopoty  price,  it  is  at  the  very 
highest  price  at  which  the  consumers  are  willing  to  purchase  it. 
Commodities  are  only  at  a  monopoly  price,  when  by  no  possible 
device  their  quantity  can  be  augmented  ;  and  when,  therefore,  the 
competition  is  wholly  on  one  side — amongst  the  buyers.  The 
monopoly  price  of  one  period  may  be  much  lower  or  higher  than 
the  monopoly  price  of  another,  because  the  competition  amongst 
the  purchasers  must  depend  on  their  wealth,  and  their  tastes  and 
caprices.  Those  peculiar  wines,  which  are  produced  in  very  limited 
quantity,  and  those  works  of  art,  which  from  their  excellence  or 
rarity,  have  acquired  a  fanciful  value,  will  be  exchanged  for  a  very 
different  quantity  of  the  produce  of  ordinary  labour,  according  as 
the  society  is  rich  or  poor,  as  it  possesses  an  abundance  or  scarcitv 
of  such  produce,  or  as  it  may  be  in  a  rude  or  polished  state.  The 
exchangeable  value  therefore  of  a  commodity  which  is  at  a  monopoly 
price,  is  nowhere  regulated  by  the  cost  of  production. 

Raw  produce  is  not  at  a  monopoly  price,  because  the  market  price 
of  barley  and  wheat  is  as  much  regulated  by  their  cost  of  produc¬ 
tion,  as  the  market  price  of  cloth  and  linen.  The  only  difference 
is  this,  that  one  portion  of  the  capital  employed  in  agriculture  regu¬ 
lates  the  price  of  corn,  namely,  that  portion  which  pays  no  rent ; 
whereas,  in  the  production  of  manufactured  commodities,  every  | 
portion  of  capital  is  employed  with  the  same  results;  and  as  no 
portion  pays  rent,  every  portion  is  equally  a  regulator  of  price : 
corn,  and  other  raw  produce,  can  be-  augmented,  too,  in  quantity, 
by  the  employment  of  more  capital  on  the  land,  and  therefore  they 
are  not  at  a  monopoly  price.  There  is  competition  among  the 
sellers,  as  well  as  amongst  the  buyers.  This  is  not  the  case  in  the 
production  of  those  rare  wines,  and  those  valuable  specimens  of 
art,  of  which  ive  have  been  speaking;  their  quantity  cannot  be 
increased,  and  their  price  is  limited  only  by  the  extent  of  the  power 
and  will  of  the  purchasers.  The  rent  of  these  vineyards  may  be 
raised  beyond  any  moderately  assignable  limits,  because  no  other 


*  “  Credit,  in  general,  is  good,  as  it  allows  capitals  to  leave  those  hands  where 
they  are  not  usefully  employed,  to  pass  into  those  where  they  will  he  made  productive: 
it  diverts  a  capital  from  an  employment  useful  only  to  the  capitalist,  such  as  an  invest¬ 
ment  in  the  public  funds,  to  make  it  productive  in  the  hands  of  industry.  It  facilitates 
the  employments  of  all  capitals,  and  leaves  none  unemployed.” — Economic  Politique, 
p.  463.  2  Vol.  4tli  Edition. — This  must  be  an  oversight  of  M.  Say.  The  capital  oi 

the  stockholder  can  never  be  made  productive— it  is,  in  fact,  no  capital.  If  he 
were  to  sell  his  stock,  and  employ  the  capital  he  obtained  for  it,  productively,  he  could 
only  do  so  by  detaching  the  capital  of  the  buyer  of  his  stock  from  a  productive 
employment. 


THAN  RAW  PRODUCE. 


151 


land  being  able  to  produce  such  wines,  none  can  be  brought  into 
competition  with  them. 

The  com  and  raw  produce  of  a  country  may,  indeed,  for  a  time, 
sell  at  a  monopoly  price  ;  but  they  can  do  so  permanently  only 
when  no  more  capital  can  be  profitably  employed  on  the  lands,  and 
when,  therefore,  their  produce  cannot  be  increased.  At  such  time, 
every  portion  of  land  in  cultivation,  and  every  portion  of  capital 
employed  on  the  land,  will  yield  a  rent,  differing,  indeed,  in  propor¬ 
tion  to  the  difference  in  the  return.  At  such  a  time,  too,  any  tax 
which  may  be  imposed  on  the  farmer,  will  fall  on  rent,  and  not  on 
the  consumer.  He  cannot  raise  the  price  of  his  corn,  because,  by 
the  supposition,  it  is  already  at  the  highest  price  at  which  the  pur¬ 
chasers  will  or  can  buy  it.  He  will  not  be  satisfied  with  a  lower 
rate  of  profits  than  that  obtained  by  other  capitalists,  and,  therefore, 
his  only  alternative  will  be,  to  obtain  a  reduction  of  rent,  or  to  quit 
his  employment. 

Mr  Buchanan  considers  corn  and  raw  produce  as  at  a  monopoly 
price,  because  they  yield  a  rent :  all  commodities  which  yield  a 
rent,  he  supposes,  must  be  at  a  monopoly  price ;  and  thence  he  infers, 
that  all  taxes  on  raw  produce  would  fall  on  the  landlord,  and  not 
on  the  consumer.  “  The  price  of  corn,”  he  says,  “  which  always 
affords  a  rent,  being  in  no  respect  influenced  by  the  expenses  of  its 
production,  those  expenses  must  be  paid  out  of  the  rent ;  and  when 
they  rise  or  fall,  therefore,  the  consequence  is  not  a  higher  or  lower 
price,  but  a  higher  or  a  lower  rent.  In  this  view,  all  taxes  on  farm 
servants,  horses,  or  the  implements  of  agriculture,  arc  in  reality 
land  taxes, — the  burden  falling  on  the  farmer  during  the  currency 
of  his  lease,  and  on  the  landlord,  when  the  lease  comes  to  be  re¬ 
newed.  In  like  manner,  all  those  improved  implements  of  husban¬ 
dry  which  save  expense  to  the  farmer,  such  as  machines  for  thrashing 
and  reaping,  whatever  gives  him  easier  access  to  the  market,  such 
as  good  roads,  canals,  and  bridges,  though  they  lessen  the  original 
cost  of  corn,  do  not  lessen  its  market  price.  Whatever  is  saved  by 
those  improvements,  therefore,  belongs  to  the  landlord  as  part  of 
his  rent. 

It  is  evident  that  if  we  yield  to  Mr  Buchanan  the  basis  on  which 
his  argument  is  built,  namely,  that  the  price  of  corn  always  yields  a 
rent,  all  the  consequences  which  he  contends  for  would  follow  of 
course.  Taxes  on  the  farmer  would  then  fall,  not  on  the  consumer, 
but  on  rent ;  and  all  improvements  in  husbandry  would  increase 
rent :  but  I  hope  I  have  made  it  sufficiently  clear,  that,  until  a 
country  is  cultivated  in  every  part,  and  up  to  the  highest  degree, 
there  is  always  a  portion  of  capital  employed  on  the  land  which 
yields  no  rent,  and  that  it  is  this  portion  of  capital,  the  result  of 
which,  as  in  manufactures,  is  divided  between  profits  and  wages, 
that  regulates  the  price  of  corn.  The  price  of  corn,  then,  which 
does  not  afford  a  rent,  being  influenced  by  the  expenses  of  its  pro¬ 
duction,  those  expenses  cannot  be  paid  out  of  rent.  The  conse- 


152 


TAXES  OX  OTHER  COMMODITIES 


quence,  therefore,  of  those  expenses  increasing,  is  a  higher  price, 
and  not  a  lower  rent.* 

It  is  remarkable  that  both  Adam  Smith  and  Mr  Buchanan,  whe 
entirely  agree  that  taxes  on  raw  produce,  a  land  tax,  and  tithes,  all 
fall  on  the  rent  of  land,  and  not  on  the  consumers  of  raw  produce, 
should  nevertheless  admit  that  taxes  on  malt  would  fall  on  the  con¬ 
sumer  of  beer,  and  not  on  the  rent  of  the  landlord.  Adam  Smith’s 
argument  is  so  able  a  statement  of  the  view  which  I  take  of  the 
subject  of  the  tax  on  malt,  and  every  other  tax  on  raw  produce,  that 
I  cannot  refrain  from  offering  it  to  the  attention  of  the  reader. 

“  The  rent  and  profits  of  barley  land  must  always  be  nearly  equal 
to  those  of  other  equally  fertile  and  equally  well  cultivated  land. 
If  they  were  less,  some  part  of  the  barley  land  would  soon  be 
turned  to  some  other  purpose ;  and  if  they  were  greater,  more  land 
would  soon  be  turned  to  the  raising  of  barley.  When  the  ordinary 
price  of  any  particular  produce  of  land  is  at  what  may  be  called  a 
monopoly  price,  a  tax  upon  it  necessarily  reduces  the  rent  and  profit! 
of  the  land  which  grows  it.  A  tax  upon  the  produce  of  those  precious 
vineyards,  of  which  the  wine  falls  so  much  short  of  the  effectual 
demand  that  its  price  is  always  above  the  natural  proportion  to  that 
of  other  equally  fertile  and  equally  well  cultivated  land,  would 
necessarily  reduce  the  rent  and  pvofitf  of  those  vineyards.  The 
price  of  the  wines  being  already  the  highest  that  couhl  be  got  for 
the  quantity  commonly  sent  to  market,  it  could  not  be  raised  higher 
without  diminishing  that  quantity  ;  and  the  quantity  could  not  be 
diminished  without  still  greater  loss,  because  the  lands  could  not  be 
turned  to  any  other  equally  valuable  produce.  The  w  hole  weight 
of  the  tax,  therefore,  would  fall  upon  the  rent  and  profit;!  properly 
upon  the  rent  of  the  vineyard.” — “  But  the  ordinary  price  of  barley 
has  never  been  a  monopoly  price;  and  the  rent  and  profit  of  barley 
land  have  never  been  above  their  natural  proportion  to  those  of 
other  equally  fertile  and  equally  well  cultivated  land.  The  different 
taxes  which  have  been  imposed  upon  malt,  beer,  and  ale,  have  never 
lowered  the  price  of  barley ;  have  never  reduced  the  rent  and  profit! 
of  barley  land.  The  price  of  malt  to  the  brewer  has  constantly 
risen  in  proportion  to  the  taxes  imposed  upon  it ;  and  those  taxes, 
together  with  the  different  duties  upon  beer  and  ale,  have  constantly 
either  raised  the  price,  or,  what  comes  to  the  same  thing,  reduced 
the  quality  of  those  commodities  to  the  consumer.  The  final  pay¬ 
ment  of  those  taxes  has  fallen  constantly  upon  the  consumer  and 


*  “  Manufacturing  industry  increases  its  produce  in  proportion  to  the  demand,  and 
the  price  falls  ;  hut  the  produce  of  land  cannot  he  so  increased ;  and  a  high  price  is  still 
necessary  to  prevent  the  consumption  from  exceeding  the  supply.” — Buchanan,  x ol.  iv. 
p.  40.  Is  it  possible  that  Mr  Buchanan  can  seriously  assert,  that  the  produce  of  the 
.and  cannot  be  increased  if  the  demand  increases? 

t  I  wish  the  word  “profit”  had  been  omitted.  Dr  Smith  must  suppose  the  profits 
of  the  tenants  of  these  precious  vineyards  to  be  above  the  general  rate  of  profits.  It 
they  were  not,  they  would  not  pay  the  tax,  unless  they  could  shift  it  either  to  the 
landlord  or  consumer. 


THAN  RAW  PRODUCE. 


153 


not  upon  the  producer.”  On  this  passage  Mr  Buchanan  remarks, 
“  A  duty  on  malt  never  could  reduce  the  price  of  barley,  because, 
unless  as  much  could  be  made  of  barley  by  malting  it  as  by  selling 
it  unmalted,  the  quantity  required  would  not  be  brought  to  market. 
It  is  clear,  therefore,  that  the  price  of  malt  must  rise  in  proportion 
to  the  tax  imposed  on  it,  as  the  demand  could  not  otherwise  be 
supplied.  The  price  of  barley,  however,  is  just  as  much  a  monopoly 
price  as  that  of  sugar ;  they  both  yield  a  rent,  and  the  market  price 
of  both  has  equally  lost  all  connexion  with  the  original  cost.” 

It  appears,  then,  to  be  the  opinion  of  Mr  Buchanan,  that  a  tax  on 
malt  would  raise  the  price  of  malt,  but  that  a  tax  on  the  barley 
from  which  malt  is  made  would  not  raise  the  price  of  barley  ;  and, 
therefore,  if  malt  is  taxed,  the  tax  will  be  paid  by  the  consumer;  if 
barley  is  taxed,  it  will  be  paid  by  the  landlord,  as  he  will  receive  a 
diminished  rent.  According  to  Mr  Buchanan,  then,  barley  is  at  a 
monopoly  price  at  the  highest  price  which  the  purchasers  are  willing 
to  give  for  it ;  but  malt  made  of  barley  is  not  at  a  monopoly  price, 
and  consequently  it  can  be  raised  in  proportion  to  the  taxes  that 
may  be  imposed  upon  it.  This  opinion  of  Mr  Buchanan  of  the 
effects  of  a  tax  on  malt  appears  to  me  to  be  in  direct  contradiction 
to  the  opinion  he  has  given  of  a  similar  tax,  a  tax  on  bread.  “  A. 
tax  on  bread  will  be  ultimately  paid,  not  by  a  rise  of  price,  but  by 
a  reduction  of  rent.”*  If  a  tax  on  malt  would  raise  the  price  of 
beer,  a  tax  on  bread  must  raise  the  price  of  bread. 

The  following  argument  of  M.  Say  is  founded  on  the  same  views 
as  Mr  Buchanan’s :  “  The  quantity  of  wine  or  corn  which  a  piece 
of  land  will  produce  will  remain  nearly  the  same,  whatever  may  be 
the  tax  with  which  it  is  charged.  The  tax  may  take  away  a  half, 
or  even  three-fourths  of  its  net  produce,  or  of  its  rent,  if  you  please, 
yet  the  land  would  nevertheless  be  cultivated  for  the  half  or  the 
quarter  not  absorbed  by  the  tax.  The  rent,  that  is  to  say,  the 
landlord’s  share,  would  merely  be  somewhat  lower.  The  reason  of 
this  will  be  perceived  if  we  consider  that,  in  the  case  supposed,  the 
quantity  of  produce  obtained  from  the  land  and  sent  to  market  will 
remain  nevertheless  the  same.  On  the  other  hand,  the  motives  on 
which  the  demand  for  the  produce  is  founded  continue  also  the 
same. 

“  Now,  if  the  quantity  of  produce  supplied,  and  the  quantity 
demanded,  necessarily  continue  the  same,  notwithstanding  the 
establishment  or  the  increase  of  the  tax,  the  price  of  that  produce 
will  not  vary;  and  if  the  price  do  not  vary,  the  consumer  will  not 
pay  the  smallest  portion  of  this  tax. 

“  Will  it  be  said  that  the  farmer,  he  who  furnishes  labour  and 
capital,  will,  jointly  with  the  landlord,  bear  the  burden  of  this  tax? 
— certainly  not :  because  the  circumstance  of  the  tax  has  not 
diminished  the  number  of  farms  to  be  let,  nor  increased  the  number 
of  farmers.  Since,  in  this  instance  also,  the  supply  and  demand 

*  V'il.  iii.  353. 


154  TAXES  ON  OTHER  COMMODITIES  THAN  RAW  PRODUCE. 

remain  the  same,  the  rent  of  farms  must  also  remain  the  same. 
The  example  of  the  manufacturer  of  salt,  who  can  only  make  the 
consumers  pay  a  portion  of  the  tax,  and  that  of  the  landlord,  who 
cannot  reimburse  himself  in  the  smallest  degree,  prove  the  error  of 
those  who  maintain,  in  opposition  to  the  economists,  that  all  taxes 
fall  ultimately  on  the  consumer.” — Vol.  ii.  p.  338. 

If  the  tax  “  took  away  half,  or  even  three-fourths  of  the  net 
produce  of  the  land,”  and  the  price  of  produce  did  not  rise,  how 
could  those  farmers  obtain  the  usual  profits  of  stock  who  paid  very 
moderate  rents,  having  that  quality  of  land  which  required  a  much 
larger  proportion  of  labour  to  obtain  a  given  result  than  land  of  a 
more  fertile  quality  ?  If  the  whole  rent  were  remitted,  they  would 
still  obtain  lower  profits  than  those  in  other  trades,  and  would 
therefore  not  continue  to  cultivate  their  land,  unless  they  could 
raise  the  price  of  its  produce.  If  the  tax  fell  on  the  farmers,  there 
would  be  fewer  farmers  disposed  to  hire  farms ;  if  it  fell  on  the 
landlord,  many  farms  would  not  be  let  at  all,  for  they  would  afford 
no  rent.  But  from  what  fund  would  those  pay  the  tax  who  produce 
corn  without  paying  any  rent  ?  It  is  quite  clear  that  the  tax  must 
fall  on  the  consumer.  How  would  such  land  as  M.  Say  describes 
in  the  following  passage  pay  a  tax  of  one-half  or  three-fourths  of 
its  produce  ? 

“  We  see  in  Scotland  poor  lands  thus  cultivated  by  the  proprietor, 
and  which  could  be  cultivated  by  no  other  person.  Thus,  too,  we 
see  in  the  interior  provinces  of  the  United  States  vast  and  fertile 
lands,  the  revenue  of  which,  alone,  would  not  be  sufficient  for  the 
maintenance  of  the  proprietor.  These  lands  are  cultivated  never¬ 
theless,  but  it  must  be  by  the  proprietor  himself,  or,  in  other  words, 
he  must  add  to  the  rent,  which  is  little  or  nothing,  the  profits  of 
his  capital  and  industry,  to  enable  him  to  live  in  competence.  It 
is  well  known  that  land,  though  cultivated,  yields  no  revenue  to 
the  landlord  when  no  farmer  will  be  willing  to  pay  a  rent  for  it : 
which  is  a  proof  that  such  land  will  give  only  the  profits  of  the 
capital,  and  of  the  industry  necessary  for  its  cultivation.” — Say, 
vok  ii.  p.  127. 


CHAPTER  XVIII. 


POOR  RATES. 

We  have  seen  that  taxes  on  raw  produce,  and  on  the  profits  of  the 
farmer,  will  fall  on  the  consumer  of  raw  produce ;  since,  unless  he 
had  the  power  of  remunerating  himself  by  an  increase  of  price,  the 
tax  would  reduce  his  profits  below  the  general  level  of  profits,  and 
would  urge  him  to  remove  his  capital  to  some  other  trade.  We 
have  seen,  too,  that  he  could  not,  by  deducting  it  from  his  rent, 
transfer  the  tax  to  his  landlord  ;  because  that  farmer  who  paid  no 
rent  would,  equally  with  the  cultivator  of  better  land,  be  subject  to 
the  tax,  whether  it  were  laid  on  raw  produce  or  on  the  profits  of 
the  farmer.  I  have  also  attempted  to  show,  that  if  a  tax  were 
general,  and  affected  equally  all  profits,  whether  manufacturing  or 
agricultural,  it  would  not  operate  either  on  the  price  of  goods  or 
raw  produce,  but  would  be  immediately,  as  well  as  ultimately,  paid 
by  the  producers.  A  tax  on  rent,  it  has  been  observed,  would  fall 
on  the  landlord  only,  and  could  not  by  any  means  be  made  to  de¬ 
volve  on  the  tenant. 

The  poor  rate  is  a  tax  which  partakes  of  the  nature  of  all  these 
taxes,  and,  under  different  circumstances,  falls  on  the  consumer  of 
raw  produce  and  goods,  on  the  profits  of  stock,  and  on  the  rent  of 
land.  ~Tt  is  a  tax  which  falls  with  peculiar  weight  on  the  profits  of 
the  farmer,  and  therefore  may  be  considered  as  affecting  the  price 
of  raw  produce.  According  to  the  degree  in  which  it  bears  on 
manufacturing  and  agricultural  profits  equally,  it  will  be  a  general 
tax  on  the  profits  of  stock,  and  will  occasion  no  alteration  in  the 
price  of  raw  produce  and  manufactures.  In  proportion  to  the  far¬ 
mer’s  inability  to  remunerate  himself,  by  raising  the  price  of  ran 
produce,  for  that  portion  of  the  tax  which  peculiarly  affects  him. 
it  will  be  a  tax  on  rent,  and  will  be  paid  by  the  landlord.  To  know, 
then,  the  operation  of  the  poor  rate  at  any  particular  time,  we  must 
ascertain  whether  at  that  time  it  affects  in  an  equal  or  an  unequal 
degree  the  profits  of  the  farmer  and  manufacturer ;  and  also  whether 
the  circumstances  be  such  as  to  afford  to  the  farmer  the  power  of 
raising  the  price  of  raw  produce. 

The  poor  rates  are  professed  to  be  levied  on  the  farmer  in  pro¬ 
portion  to  his  rent :  and,  accordingly,  the  farmer  who  paid  a  very 


J  50 


TOOK  KATES, 


small  rent,  or  no  rent  at  all,  should  pay  little  or  no  tax.  If  this 
were  true,  poor  rates,  as  far  as  they  are  paid  by  the  agricultural 
class,  would  entirely  fall  on  the  landlord,  and  could  not  be  shifted 
to  the  consumer  of  raw  produce.  But  I  believe  that  it  is  not  true  ; 
the  poor  rate  is  not  levied  according  to  the  rent  which  a  farmer 
actually  pays  to  his  landlord  ;  itds.proportioned  to  the  annual  value 
of  his  land,  whether  that  annual  value  be  given  to  it  by  the  capital 
of  the  landlord  or  of  the  tenant. 

If  two  farmers  rented  land  of  two  different  qualities  in  the  same 
parish,  the  one  paying  a  rent  of  100/.  per  annum  for  50  acres  of 
the  most  fertile  land,  and  the  other  the  same  sum  of  100/.  for  1000 
acres  of  the  least  fertile  land,  they  would  pay  the  same  amount  of 
poor  rates,  if  neither  of  them  attempted  to  improve  the  land  ;  but 
if  the  farmer  of  the  poor  land,  presuming  on  a  very  long  lease,  should 
be  induced,  at  a  great  expense,  to  improve  the  productive  powers 
of  his  land,  by  manuring,  draining,  fencing,  &c.,  he  woidd  contri¬ 
bute  to  the  poor  rates,  not  in  proportion  to  the  actual  rent  paid  to 
the  landlord,  but  to  the  actual  annual  value  of  the  land.  The  rate 
might  equal  or  exceed  the  rent ;  but  whether  it  did  or  not,  no  part 
of  this  rate  would  be  paid  by  the  landlord.  It  would  have  been 
previously  calculated  upon  by  the  tenant ;  and  if  the  price  of  produce 
were  not  sufficient  to  compensate  him  for  all  his  expenses,  together 
with  this  additional  charge  for  poor  rates,  his  improvements  would 
not  have  been  undertaken.  It  is  evident,  then,  that  the  tax  in  this 
case  is  paid  by  the  consumer ;  for  if  there  had  been  no  rate,  the 
same  improvements  would  have  been  undertaken,  and  the  usual 
and  general  rate  of  profits  would  have  been  obtained  on  the  stock 
employed,  with  a  lower  price  of  corn. 

Nor  would  it  make  the  slightest  difference  in  this  question,  if 
the  landlord  had  made  these  improvements  himself,  and  had  in 
consequence  raised  his  rent  from  100/.  to  500/.;  the  rate  would  be 
equally  charged  to  the  consumer ;  for  whether  the  landlord  should 
expend  a  large  sum  of  money  on  his  land,  would  depend  on  the 
rent,  or  what  is  called  rent,  which  he  would  receive  as  a  remunera¬ 
tion  for.it;  and  this  again  would  depend  on  the  price  of  corn,  or 
other  raw  produce,  being  sufficiently  high  not  only  to  cover  this 
additional  rent,  but  also  the  rate  to  which  the  land  would  be  sub¬ 
ject.  If  at  the  same  time  all  manufacturing  capital  contributed  to 
the  poor  rates,  in  the  same  proportion  as  the  capital  expended  by 
the  farmer  or  landlord  in  improving  the  land,  then  it  would  no 
longer  be  a  partial  tax  on  the  profits  of  the  farmer’s  or  landlord’s 
capital,  but  a  tax  on  the  capital  of  all  producers  ;  and,  therefore,  it 
could  no  longer  be  shifted  either  on  the  consumer  of  raw  produce 
or  on  the  landlord.  The  farmer’s  profits  would  feel  the  effect  of 
the  rate  no  more  than  those  of  the  manufacturer ;  and  the  former 
could  not,  any  more  than  the  latter,  plead  it  as  a  reason  for  an 
advance  in  the  price  of  his  commodity.  It  is  not  the  absolute,  but 
the  relative  fall  of  profits,  which  prevents  capital  from  being  em- 


POOU  KATEy. 


157 


ployed  in  any  particular  trade  :  it  is  the  difference  of  profit  which 
sends  capital  from  one  employment  to  another. 

It  must  be  acknowledged,  however,  that  in  the  actual  state  of 
the  poor  rates,  a  much  larger  amount  falls  on  the  farmer  than  on 
the  manufacturer,  in  proportion  to  their  respective  profits  ;  the 
farmer  being  rated  according  to  the  actual  productions  which  he 
obtains,  the  manufacturer  only  according  to  the  value  of  the  build¬ 
ings  in  which  he  works,  without  any  regard  to  the  value  of  the 
machinery,  labour,  or  stock  which  he  may  employ.  From  this 
circumstance  it  follows,  that  the  farmer  will  be  enabled  to  raise  the 
price  of  his  produce  by  this  whole  difference.  For  since  the  tax 
falls  unequally,  and  peculiarly  on  his  profits,  he  would  have  less 
motive  to  devote  his  capital  to  the  land,  than  to  employ  it  in  some 
other  trade,  were  not  the  price  of  raw  produce  raised.  If,  on  the 
contrary,  the  rate  had  fallen  with  greater  weight  on  the  manufac¬ 
turer  than  on  the  farmer,  he  would  have  been  enabled  to  raise  the 
price  of  his  goods  by  the  amount  of  the  difference,  for  the  same 
reason  that  the  farmer  under  similar  circumstances  could  raise  the 
price  of  raw  produce.  In  a  society,  therefore,  which  is  extending 
its  agriculture,  when  poor  rates  fall  with  peculiar  weight  on  the 
land,  they  will  be  paid  partly  by  the  employers  of  capital  in  a  dimi¬ 
nution  of  the  profits  of  stock,  and  partly  by  the  consumer  of  raw 
produce  in  its  increased  price.  In  such  a  state  of  things,  the  tax 
may,  under  some  circumstances,  be  even  advantageous  rather  than 
injurious  to  landlords ;  for  if  the  tax  paid  by  the  cultivator  of  the 
worst  land,  be  higher  in  proportion  to  the  quantity  of  produce 
obtained,  than  that  paid  by  the  farmers  of  the  more  fertile  lands, 
the  rise  in  the  price  of  corn,  which  will  extend  to  all  corn,  will 
more  than  compensate* the  latter  for  the  tax.  This  advantage  will 
remain  with  them  during  the  continuance  of  their  leases,  but  it  will 
afterwards  be  transferred  to  their  landlords.  This,  then,  would  be 
the  effect  of  poor  rates  in  an  advancing  society  ;  but  in  a  stationary, 
or  in  a  retrograde  country,  so  far  as  capital  cotdd  not  be  with¬ 
drawn  from  the  land,  if  a  further  rate  were  levied  for  the  support 
of  the  poor,  that  part  of  it  Avhich  fell  on  agriculture  would  be  paid, 
during  the  current  leases,  by  the  farmers  ;  but,  at  the  expiration  of 
those  leases,  it  would  almost  wholly  fall  on  the  landlords.  The 
farmer,  who,  during  his  former  lease,  had  expended  his  capital  in 
improving  his  land,  if  it  were  still  in  his  own  hands,  would  be  rated 
for  this  new  tax  according  to  the  new  value  which  the  land  had 
acquired  by  its  improvement,  and  this  amount  he  would  be  obliged 
to  pay  during  his  lease,  although  his  profits  might  thereby  be 
reduced  below  the  general  rate  of  profits ;  for  the  capital  which  he 
has  expended  may  be  so  incorporated  with  the  land,  that  it  cannot 
be  removed  from  it.  If,  indeed,  be  or  his  landlord  (should  it  have 
been  expended  by  him)  were  able  to  remove  this  capital,  and 
thereby  reduce  the  annual  value  of  the  land,  the  rate  would  pro- 
portionably  fall:  and  as  the  produce  would  at  the  same  time  be 


158 


POOR  RATES. 


diminished,  its  price  would  rise ;  lie  would  be  compensated  for  the 
tax,  by  charging  it  to  the  consumer,  and  no  part  would  fall  on 
rent ;  but  this  is  impossible,  at  least  with  respect  to  some  propor¬ 
tion  of  the  capital,  and  consequently  in  that  proportion  the  tax 
will  be  paid  by  the  farmers  during  their  leases,  and  by  landlords 
at  their  expiration.  This  additional  tax,  if  it  fell  with  peculiar 
severity  on  manufacturers,  which  it  does  not,  would,  under  such 
circumstances,  be  added  to  the  price  of  their  goods  ;  for  there  can 
be  no  reason  why  their  profits  should  be  reduced  below  the  general 
rate  of  profits,  when  their  capitals  might  be  easily  removed  to 
agriculture.* 


*  In  a  former  part  of  this  work,  I  have  noticed  the  difference  between  rent,  properly 
so  called,  and  the  remuneration  paid  to  the  landlord  under  that  name,  for  the  advan¬ 
tages  which  the  expenditure  of  his  capital  has  procured  to  his  tenant ;  but  I  did  not 
perhaps  sufficiently  distinguish  the  difference  which  would  arise  from  the  different 
modes  in  which  this  capital  might  be  applied.  As  a  part  of  this  capital,  when  once 
expended  in  the  improvement  of  a  farm,  is  inseparably  amalgamated  with'  the  land, 
and  tends  to  increase  its  productive  powers,  the  remuneration  paid  to  the  landlord  for 
its  use  is  strictly  of  the  nature  of  rent,  and  is  subject  to  all  the  laws  of  rent.  Whether 
the  improvement  be  made  at  the  expense  of  the  landlord  or  the  tenant,  it  will  not  be 
undertaken  in  the  first  instance,  unless  there  is  a  strong  probability  that  the  return 
will  at  least  be  equal  to  the  profit  that  can  be  made  by  the  disposition  of  any  other 
equal  capital ;  but  when  once  made,  the  return  obtained  will  ever  after  be  wholly  of 
the  nature  of  rent,  and  will  be  subject  to  all  the  variations  of  rent.  Some  of  these 
expenses,  however,  only  give  advantages  to  the  land  for  a  limited  period,  and  do  not 
add  permanently  to  its  productive  powers :  being  bestowed  on  buildings,  and  other 
perishable  improvements,  they  require  to  be  constantly  renewed,  and  therefore  do  not 
obtain  for  the  landlord  any  permanent  addition  to  liis  real  rent. 


r  159 


i 


CHAPTER  XIX. 


ON  SUDDEN  CHANGES  IN  THE  CHANNELS  OF  TRADE. 

A  GREAT  manufacturing  country  is  peculiarly  exposed  to  temporary 
reverses  and  contingencies,  produced  by  the  removal  of  capital 
from  one  employment  to  another.  The  demands  for  the  produce  of 
agriculture  are  uniform  ;  they  are  not  under  the  influence  of  fashion, 
prejudice,  or  caprice.  To  sustain  life,  food  is  necessary,  and  the 
demand  for  food  must  continue  in  all  ages,  and  in  all  countries.  Tt 
is  different  with  manufactures  ;  the  demand  for  any  particular 
manufactured  commodity  is  subject,  not  only  to  the  wants,  but  to 
the  tastes  and  caprice  of  the  purchasers.  A  new  tax,  too,  may 
destroy  the  comparative  advantage  which  a  country  before  possessed 
in  the  manufacture  of  a  particular  commodity  ;  or  the  effects  of  war 
may  so  raise  the  freight  and  insurance  on  its  conveyance,  that  it 
can  no  longer  enter  into  competition  with  the  home  manufacture  of 
the  country  to  which  it  was  before  exported.  In  all  such  cases, 
considerable  distress,  and  no  doubt  some  loss,  will  be  experienced 
by  those  who  are  engaged  in  the  manufacture  of  such  commodities  ; 
and  it  will  be  felt,  not  only  at  the  time  of  the  change,  but  through 
the  whole  interval  during  which  they  are  removing  their  capitals, 
and  the  labour  which  they  can  command,  from  one  employment  to 
another. 

Nor  will  distress  be  experienced  in  that  country  alone  where 
such  difficulties  originate,  but  in  the  countries  to  which  its  com¬ 
modities  were  before  exported.  No  country  can  long  import,  unless 
it  also  exports,  or  can  long  export  unless  it  also  imports.  If,  then, 
any  circumstance  should  occur,  which  should  permanently  prevent 
a  country  from  importing  the  usual  amount  of  foreign  commodities, 
it  will  necessarily  diminish  the  manufacture  of  some  of  those  com¬ 
modities  which  were  usually  exported  ;  and  although  the  total 
value  of  the  productions  of  the  country  will  probably  be  but  little 
altered,  since  the  same  capital  will  be  employed,  yet  they  will  not 
be  equally  abundant  and  cheap  ;  and  considerable  distress  will  be 
experienced  through  the  change  of  employments.  If,  by  the  em¬ 
ployment  of  10,000/.  in  the  manufacture  of  cotton  goods  for  ex¬ 
portation,  we  imported  annually  3000  pair  of  silk  stockings  of  the 
value  of  2000/.,  and  by  the  interruption  of  foreign  trade  we  should 
bo  obliged  to  withdraw  this  capital  from  the  manufacture  of  cotton, 


160 


ON  SUDDEN  CHANGES 


anti  employ  it  ourselves  in  the  manufacture  of  stockings,  we  should 
still  obtain  stockings  of  the  value  of  2000k,  provided  no  part  of  the 
capital  were  destroyed  ;  but  instead  of  having  3000  pair,  we  might 
only  have  2,500.  In  the  removal  of  the  capital  from  the  cotton  to 
the  stocking  trade,  much  distress  might  be  experienced,  but  it 
would  not  considerably  impair  the  value  of  the  national  property, 
although  it  might  lessen  the  quantity  of  our  annual  productions.* 

The  commencement  of  war  after  a  long  peace,  or  of  peace  after 
a  long  war,  generally  produces  considerable  distress  in  trade.  It 
changes  in  a  great  degree  the  nature  of  the  employments  to  which 
the  respective  capitals  of  countries  were  before  devoted  ;  and  during 
the  interval  while  they  are  settling  in  the  situations  which  new 
circumstances  have  made  the  most  beneficial,  much  fixed  capital  is 
unemployed,  perhaps  wholly  lost,  and  labourers  are  without  full 
employment.  The  duration  of  this  distress  will  be  longer  or 
shorter,  according  to  the  strength  of  that  disinclination  which  most 
men  feel  to  abandon  that  employment  of  their  capital  to  which 
they  have  long  been  accustomed.  It  is  often  protracted,  too,  by 
the  restrictions  and  prohibitions  to  which  the  absurd  jealousies 
which  prevail  between  the  different  States  of  the  commercial  com¬ 
monwealth  give  rise. 

The  distress  which  proceeds  from  a  revulsion  of  trade  is  often 
mistaken  for  that  which  accompanies  a  diminution  of  the  national 
capital  and  a  retrograde  state  of  society ;  and  it  would  perhaps  be 
difficult  to  point  out  any  marks  by  which  they  may  be  accurately 
distinguished. 

O 

When,  however,  such  distress  immediately  accompanies  a  change 
from  war  to  peace,  our  knowledge  of  the  existence  of  such  a  cause 
will  make  it  reasonable  to  believe  that  the  funds  for  the  maintenance 
of  labour  have  rather  been  diverted  from  their  usual  channel  than 
materially  impaired,  and  that,  after  temporary  suffering,  the  nation 
will  again  advance  in  prosperity.  It  must  be  remembered,  too,  that 
the  retrograde  condition  is  always  an  unnatural  state  of  society. 
Man  from  youth  grows  to  manhood,  then  decays,  and  dies ;  but  this 
is  not  the  progress  of  nations.  When  arrived  to  a  state  of  the 
greatest  vigour,  their  further  advance  may  indeed  be  arrested,  but 
their  natural  tendency  is  to  continue  for  ages  to  sustain  undiminished 
their  wealth  and  their  population. 

*  “  Commerce  enables  ns  to  obtain  a  commodity  in  the  place  where  it  is  to  be 
found,  and  to  convey  it  to  another  where  it  is  to  be  consumed  ;  it  therefore  gives  us 
the  power  of  increasing  the  value  of  the  commodity,  by  the  whole  difference  between 
its  price  in  the  first  of  these  places,  and  its  price  in  the  second.”' — M.  Say,  p.  458. 
vol.  ii. — True,  hut  how  is  this  additional  value  given  to  it  ?  By  adding,  to  the  cost  of 
production,  first,  the  expenses  of  conveyance ;  secondly,  the  profit  on  the  advances  of 
capital  made  by  the  merchant.  The  commodity  is  only  more  valuable,  for  the  same 
reasons  that  every  other  commodity  may  become  more  valuable,  because  more  labour 
is  expended  on  its  production  and  conveyance,  before  it  is  purchased  by  the  consumer. 
This  must  not  be  mentioned  as  one  of  the  advantages  of  commerce.  When  the  sub¬ 
ject  is  more  closely  examined,  it  will  be  found  that  the  whole  benefits  of  commerce 
resolve  themselves  into  the  means  which  it  gives  us  of  acquiring,  not  more  valuable 
objects,  but  more  useful  ones. 


IN  THE  CHANNELS  OF  TRADE. 


1G1 


In  rich  and  powerful  countries,  where  large  capitals  are  invested 
in  machinery,  more  distress  will  be  experienced  from  a  revulsion  in 
trade  than  in  poorer  countries  where  there  is  proportionally  a  much 
smaller  amount  of  fixed,  and  a  much  larger  amount  of  circulating 
capital,  and  where  consequently  more  work  is  done  by  the  labour 
of  men.  It  is  not  so  difficult  to  withdraw  a  circulating  as  a  fixed 
capital  from  any  employment  in  which  it  may  be  engaged.  It  is 
often  impossible  to  divert  the  machinery  which  may  have  been 
erected  for  one  manufacture  to  the  purposes  of  another ;  but  the 
clothing,  the  food,  and  the  lodging  of  the  labourer  in  one  employ¬ 
ment  may  be  devoted  to  the  support  of  the  labourer  in  another ;  or 
the  same  labourer  may  receive  the  same  food,  clothing,  and  lodging, 
whilst  his  employment  is  changed.  This,  however,  is  an  evil  to 
which  a  rich  nation  must  submit ;  and  it  would  not  be  more  rea¬ 
sonable  to  complain  of  it  than  it  would  be  in  a  rich  merchant  to 
lament  that  his  ship  was  exposed  to  the  dangers  of  the  sea,  whilst 
his  poor  neighbour’s  cottage  was  safe  from  all  such  hazard. 

From  contingencies  of  this  kind,  though  in  an  inferior  degree, 
even  agriculture  is  not  exempted.  War,  which,  in  a  commercial 
country,  interrupts  the  commerce  of  states,  frequently  prevents  the 
exportation  of  corn  from  countries  where  it  can  be  produced  with 
little  cost  to  others  not  so  favourably  situated.  Under  such 
circumstances  an  unusual  quantity  of  capital  is  drawn  to  agriculture, 
and  the  country  which  before  imported  becomes  independent  of 
foreign  aid.  At  the  termination  of  the  war,  the  obstacles  to  impor¬ 
tation  are  removed,  and  a  competition  destructive  to  the  home- 
grower  commences,  from  which  lie  is  unable  to  withdraw  without 
the  sacrifice  of  a  great  part  of  his  capital.  The  best  policy  of  the 
State  would  be,  to  lay  a  tax,  decreasing  in  amount  from  time  to 
time,  on  the  importation  of  foreign  corn,  for  a  limited  number  of 
years,  in  order  to  afford  to  the  home-grower  an  opportunity  to 
withdraw  his  capital  gradually  from  the  land.*  In  so  doing,  the 
countrv  might  not  be  making  the  most  advantageous  distribution 

*  In  the  last  volume  of  the  supplement  to  the  Encyclopaedia  Britannica,  article 
“  Corn  Laws  and  Trade,”  are  the  following  excellent  suggestions  and  observations  : — 
“If  we  shall  at  any  future  period  think  of  retracing  our  steps,  in  order  to  give  time  to 
withdraw  capital  from  the  cultivation  of  our  poor  soils,  and  to  invest  it  in  more  lucra¬ 
tive  employments,  a  gradually  diminishing  scale  of  duties  may  he  adopted.  The  price 
at  which  foreign  grain  should  be  admitted  duty  free  may  be  made  to  decrease  from 
80s.,  its  present  limit,  by  4s.  or  5s.  per  quarter  annually  till  it  reaches  50s.,  when  the  ports 
could  safely  be  thrown  open,  and  the  restrictive  system  he  for  ever  abolished.  When 
this  happy  event  shall  have  taken  place,  it  will  be  no  longer  necessary  to  force  nature. 
The  capital  and  enterprise  of  the  country  will  be  turned  into  those  departments  of 
industry  in  which  our  physical  situation,  national  character,  or  political  institutions  fit 
us  to  excel.  The  corn  of  Poland  and  the  raw  cotton  of  Carolina  will  be  exchanged 
for  the  wares  of  Birmingham  and  the  muslins  of  Glasgow.  The  genuine  commercial 
spirit,  that  which  permanently  secures  the  prosperity  of  nations,  is  altogether  incon¬ 
sistent  with  the  dark  and  shallow  policy  of  monopoly.  The  nations  of  the  earth  are 
like  provinces  of  the  same  kingdom — a  free  and  unfettered  intercourse  is  alike  pro¬ 
ductive  of  general  and  of  local  advantage.”  The  whole  article  is  well  worthy  of 
,  attention  ;  it  is  very  instructive,  is  ably  written,  and  shows  that  the  autnor  is  completely 
master  of  the  subject. 


1G2 


OX  SUDDJ'.N  CHANGES 


of  its  capital,  but  the  temporary  tax  to  which  it  was  subjected  would 
be  for  the  advantage  of  a  particular  class,  the  distribution  of  whose 
capital  was  highly  useful  in  procuring  a  supply  of  food  when 
importation  was  stopped.  If  such  exertions  in  a  period  of  emer¬ 
gency  were  followed  by  a  risk  of  ruin  on  the  termination  of  the 
difficult}',  capital  would  shun  such  an  employment.  Besides  the 
usual  profits  of  stock,  farmers  would  expect  to  be  compensated  for 
the  risk  which  they  incurred  of  a  sudden  influx  of  corn ;  and, 
therefore,  the  price  to  the  consumer,  at  the  seasons  when  he  most 
required  a  supply,  would  be  enhanced,  not  only  by  the  superior  cost 
of  growing  corn  at  home,  but  also  by  the  insurance  which  he  would 
have  to  pay  in  the  price  for  the  peculiar  risk  to  which  this  employ¬ 
ment  of  capital  was  exposed.  Notwithstanding,  then,  that  it  would 
be  more  productive  of  wealth  to  the  country,  at  whatever  sacrifice- 
of  capital  it  might  be  done,  to  allow  the  importation  of  cheap  corn, 
it  would,  perhaps,  be  advisable  to  charge  it  with  a  duty  for  a  few 
years. 

In  examining  the  question  of  rent,  we  found,  that,  with  every 
increase  in  the  supply  of  corn,  and  with  the  consequent  fall  of  its 
price,  capital  would  be  withdrawn  from  the  poorer  land,  and  land 
of  a  better  description,  which  would  then  pay  no  rent,  would, 
become  the  standard  by  which  the  natural  price  of  corn  would  be 
regulated.  At  4 1.  per  quarter,  land  of  an  inferior  quality,  which 
may  be  designated  bv  No.  6,  might  be  cultivated  ;  at  3 1.  10s., 
No.  o  ;  at  3 L,  No.  4,  and  so  on.  If  corn,  in  consequence  of  perma¬ 
nent  abundance,  fell  to  3/.  10s.,  the  capital  employed  on  No.  G 
would  cease  to  be  employed ;  for  it  was  only  when  corn  was  at  il. 
that  it  could  obtain  the  general  profits,  even  without  paying  rent : 
it  would,  therefore,  be  withdrawn  to  manufacture  those  commodities 
with  which  all  the  corn  grown  on  No.  6  would  be  purchased  and 
imported.  In  this  employment  it  would  necessarily  be  more  pro¬ 
ductive  to  its  owner,  or  it  would  not  be  withdrawn  from  the  other; 
for  if  he  could  not  obtain  more  corn  by  purchasing  it  with  a  com¬ 
modity  which  he  manufactured  than  he  got  from  the  land  for  which 
he  paid  no  rent,  its  price  could  not  be  under  4 1. 

It  has,  however,  been  said,  that  capital  cannot  be  withdrawn 
from  the  land ;  that  it  takes  the  form  of  expenses  which  cannot  be 
recovered,  such  as  manuring,  fencing,  draining,  &c.,  which  are 
necessarily  inseparable  from  the  land.  This  is  in  some  degree  true; 
but  that  capital  which  consists  of  cattle,  sheep,  hay  and  corn  ricks, 
carts,  &c.,  may  be  withdrawn  ;  and  it  always  becomes  a  matter  of 
calculation  whether  these  shall  continue  to  be  employed  on  the  land, 
notwithstanding  the  low  price  of  corn,  or  whether  they  shall  be  sold, 
and  their  value  transferred  to  another  employment. 

Suppose,  however,  the  fact  to  be  as  stated,  and  that  no  part  of 
the  capital  could  be  withdrawn  ;*  the  farmer  would  continue  to 

*  Whatever  capital  becomes  fixed  on  the  land  must  necessarily  be  the  landlord’s, 
ir:d  not  the  tenant’s,  at  the  expiration  of  the  lease.  Whatever  compensation  tha 


IX  THE  CHAXNELS  OF  TRADE. 


163 


raise  corn,  and  precisely  the  same  quantity,  too,  at  whatever  price 
it  might  sell  ;  for  it  could  not  be  his  interest  to  produce  less,  and 
if  he  did  not  so  employ  his  capital,  he  would  obtain  from  it  no 
return  whatever.  Corn  could  not  be  imported,  because  he  would 
sell  it  lower  than  3/.  10s.  rather  than  not  sell  it  at  all,  and  by  the 
supposition  the  importer  could  not  sell  it  under  that  price.  Although, 
then,  the  farmers,  who  cultivated  land  of  this  quality,  would  un¬ 
doubtedly  be  injured  by  the  fall  in  the  exchangeable  value  of  the 
commodity  which  they  produced,  - —  how  would  the  country  be 
affected?  AVc  should  have  precisely  the  same  quantity  of  every 
commodity  produced,  hut  raw  produce  and  corn  would  sell  at  a 
much  cheaper  price.  The  capital  of  a  country  consists  of  its  com¬ 
modities,  and  as  these  would  be  the  same  as  before,  reproduction 
would  go  on  at  the  same  rate.  This  low  price  of  corn  would,  how¬ 
ever,  only  afford  the  usual  profits  of  stock  to  the  land,  No.  5,  which 
would  then  pay  no  rent,  and  the  rent  of  all  better  land  would  fall : 
wages  would  also  fall,  and  profits  would  rise. 

However  low  the  price  of  corn  might  fall,  if  capital  could  not  ’be 
removed  from  the  land,  and  the  demand  did  not  increase,  no 
importation  would  take  place,  for  the  same  quantity  as  before  would 
be  produced  at  home.  Although  there  would  be  a  different  division 
of  the  produce,  and  some  classes  would  be  benefited  and  others 
injured,  the  aggregate  of  production  would  be  precisely  the  same, 
and  the  nation  collectively  would  neither  be  richer  nor  poorer. 

But  there  is  this  advantage  always  resulting  from  a  relatively  low 
price  of  corn,— -that  the  division  of  the  actual  production  is  more 
likely  to  increase  the  fund  for  the  maintenance  of  labour,  inasmuch 
as  more  will  be  allotted,  under  the  name  of  profit,  to  the  productive 
class, — a  less,  under  the  name  rent,  to  the  unproductive  class. 

This  is  true,  even  if  the  capital  cannot  lie  withdrawn  from  the 
land,  and  must  be  employed  there,  or  not  be  employed  at  all ;  but  if 
great  part  of  the  capital  can  be  withdrawn,  as  it  evidently  could,  it 
will  be  only  withdrawn  when  it  will  yield  more  to  the  owner  by 
being  withdrawn  than  by  being  suffered  to  remain  where  it  was ; 
it  will  only  be  withdrawn  then,  when  it  can  elsewhere  be  employed 
more  productively  both  for  the  owner  and  the  public.  He  consents 
to  sink  that  part  of  his  capital  which  cannot  be  separated  from  the 

landlord  may  receive  for  this  capital  on  re-letting  his  land,  will  appear  in  the  form  of 
rent;  but  no  rent  will  he  paid  if,  with  a  given  capital,  more  corn  can  he  obtained  from 
abroad  than  can  be  grown  on  this  land  at  home.  If  the  circumstances  of  the  society 
should  require  corn  to  be  imported,  and  1000  quarters  can  be  obtained  by  the  employ¬ 
ment  of  a  given  capital,  and  if  this  land,  with  the  employment  of  the  same  capital, 
will  yield  1,100  quarters,  100  quarters  will  necessarily  go  to  rent;  but  if  1,200  can  be 
got  from  abroad,  then  this  land  will  go  out  of  cultivation,  for  it  will  not  then  yield 
even  the  general  rate  of  profit.  But  this  is  no  disadvantage,  however  great  the  capital 
may  have  been  that  had  been  expended  on  the  land.  Such  capital  is  spent  with  a 
cicw  to  augment  the  produce — that,  it  should  be  remembered,  is  the  end ;  of  what 
importance,  then,  can  it  be  to  the  society,  whether  half  its  capital  be  sunk  in  value,  or 
even  annihilated,  if  they  obtain  a  greater  annual  quantity  of  production  ?  Those  who 
deplore  the  loss  of  capital  in  this  case,  are  for  sacrificing  the  end  to  the  means. 


1G4  on  sudden  changes  in  tue  channels  of  trade. 


land,  because  with  that  part  which  he  can  take  away  he  can  obtain 
a  greater  value,  and  a  greater  quantity  of  raw  produce,  than  by  not 
sinking  this  part  of  the  capital.  His  case  is  precisely  similar  to 
that  of  a  man  who  has  erected  machinery  in  his  manufactory  at  a 
great  expense,  machinery  which  is  afterwards  so  much  improved 
upon  by  more  modern  inventions  that  the  commodities  manufactured 
by  him  very  much  sink  in  value.  It  would  be  entirely  a  matter  of 
calculation  with  him  whether  he  should  abandon  the  old  machinery, 
and  erect  the  more  perfect,  losing  all  the  value  of  the  old ,  or  continue 
to  avail  himself  of  its  comparatively  feeble  powers.  Who,  under 
such  circumstances,  would  exhort  him  to  forego  the  use  of  the 
better  machinery,  because  it  would  deteriorate  or  annihilate  the 
value  of  the  old  ?  Yet,  this  is  the  argument  of  those  who  would 
wish  us  to  prohibit  the  importation  of  corn,  because  it  will  deterio¬ 
rate  or  annihilate  that  part  of  the  capital  of  the  farmer  which  is  for 
ever  sunk  in  land.  They  do  not  see  that  the  end  of  all  commerce 
is  to  increase  production,  and  that,  by  increasing  production,  though 
you  may  occasion  partial  loss,  you  increase  the  general  happiness. 
To  be  consistent,  they  should  endeavour  to  arrest  all  improvements 
in  agriculture  and  manufactures,  and  all  inventions  of  machinery; 
Tor,  though  these  contribute  to  general  abundance,  and  therefore  to 
.the  general  happiness,  they  never  fail,  at  the  moment  of  their 
introduction,  to  deteriorate  or  annihilate  the  value  of  a  part  of  the 
existing  capital  of  farmers  and  manufacturers.* 

Agriculture,  like  all  other  trades,  and  particularly  in  a  commercial 
country,  is  subject  to  a  reaction,  which,  in  an  opposite  direction, 
succeeds  the  action  of  a  strong  stimulus.  Thus,  when  war  inter¬ 
rupts  the  importation  of  corn,  its  consequent  high  price  attracts 
capital  to  the  land,  from  the  large  profits  which  such  an  employ¬ 
ment  of  it  affords ;  this  will  probably  cause  more  capital  to  be 
employed,  and  more  raw  produce  to  be  brought  to  market  than  the 
demands  of  the  country  require.  In  such  case,  the  price  of  corn 
will  fall  from  the  effects  of  a  glut,  and  much  agricultural  distress 
will  be  produced,  till  the  average  supply  is  brought  to  a  level  with 
the  average  demand. 

O 


*  Among  the  most  able  of  the  publications  on  the  impolicy  of  restricting  the 
Importation  of  Corn  may  be  classed  Major  Torrens’  Essay  on  the  External  Corn 
Trade.  His  arguments  appear  to  me  to  be  unanswered,  and  to  be  unanswerable. 


[  165  ] 


CHAPTER  XX. 


VALUE  AND  RICHES,  THEIR  DISTINCTIVE  PROPERTIES. 

ic  A  man  is  rich  or  poor,”  says  Adam  Smith,  “  according  to  the  ^ 
degree  in  which  he  can  afford  to  enjoy  the  necessaries,  conveniences, 
and  amusements  of  human  life.” 

Value,  then,  essentially  differs  from  riches,  for  value  depends  not 
on  abundance,  but  on  the  difficulty  or  facility  of  production.  The 
labour  of  a  million  of  men  in  manufactures  will  always  produce  the 
same  value,  but  will  not  always  produce  the  same  riches.  By  the 
invention  of  machinery,  by  improvements  in  skill,  by  a  better 
division  of  labour,  or  by  the  discovery  of  new  markets,  where  more 
advantageous  exchanges  may  be  made,  a  million  of  men  may  pro¬ 
duce  double,  or  treble  the  amount  of  riches,  of  “  necessaries, 
conveniences,  and  amusements,”  in  one  state  of  society,  that  they 
could  produce  in  another,  but  they  will  not  on  that  account  add 
any  thing  to  value  ;  for  every  thing  rises  or  falls  in  value,  in  pro¬ 
portion  to  the  facility  or  difficulty  of  producing  it,  or,  in  other 
words,  in  proportion  to  the  quantity  of  labour  employed  on  its 
production.  Suppose,  with  a  given  capital,  the  labour  of  a  certaini 
number  of  men  produced  1000  pair  of  stockings,  and  that  by  in¬ 
ventions  in  machinery,  the  same  number  of  men  can  produce  2000 
pair,  or  that  they  can  continue  to  produce  1000  pair,  and  can 
produce  besides  500  hats ;  then  the  value  of  the  2000  pair  of 
stockings,  or  of  the  1000  pair  of  stockings  and  500  hats,  will  be 
neither  more  nor  less  than  that  of  the  1000  pair  of  stockings  before 
the  introduction  of  machinery ;  for  they  will  be  the  produce  of  the 
same  quantity  of  labour.  But  the  value  of  the  general  mass  of 
commodities  will  nevertheless  be  diminished ;  for,  although  the 
value  of  the  increased  quantity  produced  in  consequence  of  the 
improvement  will  be  the  same  exactly  as  the  value  would  have  been 
of  the  less  quantity  that  would  have  been  produced,  had  no  im¬ 
provement  taken  place,  an  effect  is  also  produced  on  the  portion  of 
goods  still  unconsiuncd,  which  were  manufactured  previously  to  the 
improvement ;  the  value  of  those  goods  will  be  reduced,  inasmuch 
as  they  must  fall  to  the  level,  quantity  for  quantity,  of  the  goods 
produced  under  all  the  advantages  of  the  improvement :  and  the 
society  will,  notwithstanding  the  increased  quantity  of  commodities, 
notwithstanding  its  augmented  riches,  and  its  augmented  means  of 


1 60 


VALUE  AND  KICHES, 


enjoyment,  have  a  less  amount  of  value.  /By  constantly  increasing 
the  facility  of  production,  we  constantly  diminish  the  value  of  some 
0  of  the  commodities  before  produced,  though  by  the  same  means  we 
not  only  add  do  the  national  riches,  but  also  to  the  power  of  future 
production.^  Many  of  the  errors  in  political  economy  have  arisen 
_  from  errors  on  this  subject,  from  considering  an  increase  of  riches, 
and  an  increase  of  value,  as  meaning  the  same  thing,  and  from  un¬ 
founded  notions  as  to  what  constituted  a  standard  measure  of  value?) 
One  man  considers  money  as  a  standard  of  value,  and  a  nation 
grows  richer  or  poorer,  according  to  him,  in  proportion  as  its  com¬ 
modities  of  all  kinds  can  exchange  for  more  or  less  money.  Others 
represent  money  as  a  very  convenient  medium  for  the  purpose  of 
balder,  but  not  as  a  proper  measure  by  which  to  estimate  the  value 
of  other  things ;  the  real  measure  of  value  according  to  them  is 
corn,*  and  a  country  is  rich  or  poor,  according  as  its  commodities 
will  exchange  for  more  or  less  corn.f  There  are  others  again,  who 
consider  a  country  rich  or  poor,  according  to  the  quantity  of  labour 
that  it  can  purchase.  But  why  should  gold,  or  corn,  or  labour,  be 
the  standard  measure  of  value,  more  than  coals  or  iron? — more  than 
cloth,  soap,  candles,  and  the  other  necessaries  of  the  labourer? — 
why,  in  short,  should  any  commodity,  or  all  commodities  together, 
be  the  standard,  when  such  a  standard  is  itself  subject  to  fluctua¬ 
tions  in  value  ?  Corn,  as  well  as  gold,  may  from  difficulty  or  facility 
of  production,  vary  10,  20,  or  30  per  cent.,  relatively  to  other  things ; 
why  should  we  always  say,  that  it  is  those  other  things  which  have 
varied,  and  not  the  corn  ?  That  commodity  is  alone  invariable, 
Owhich  at  all  times  requires  the  same  sacrifice  of  toil  and  labour  to 
produce  it.  Of  such  a  commodity  we  have  no  knowdedge,  but  we 
may  hypothetically  argue  and  speak  about  it  as  if  we  had ;  and  may 
improve  our  knowledge  of  the  science,  by  showing  distinctly  the 
absolute  inapplicability  of  all  the  standards  which  have  been  hitherto 
adopted.  But  supposing  either  of  these  to  be  a  correct  standard  of 
value,  still  it  would  not  be  a  standard  of  riches,  for  riches  do  not 
depend  on  value.  A  man  is  rich  or  poor,  according  to  the  abundance 
of  necessaries  and  luxuries  which  he  can  command ;  and  whether 
the  exchangeable  value  of  these  for  money,  for  corn,  or  for  labour, 
be  high  or  low,  they  will  equally  contribute  to  the  enjoyment  of 
their  possessor.  It  is  through  confounding  the  ideas  of  value  and 
wealth,  or  riches,  that  it  has  been  asserted,  that  by  diminishing  the 

*  Adam  Smith  says,  “  that  the  difference  between  the  real  and  the  nominal  price 
of  commodities  and  labour  is  not  a  matter  of  mere  speculation,  hut  may  sometimes 
be  of  considerable  use  in  practice.”  I  agree  with  him ;  but  the  real  price  of  labour 
and  commodities  is  no  more  to  he  ascertained  by  their  price  in  goods,  Adam  Smith’s 
real  measure,  than  by  their  price  in  gold  and  silver,  his  nominal  measure.  The 
labourer  is  only  paid  a  really  high  price  for  his  labour  when  his  wages  will  purchase 
the  produce  of  a  great  deal  of  labour. 

t  In  vol.  i.  p.  108,  M.  Say  infers,  that  silver  is  now  of  the  same  value  as  in  the  reign 
of  Louis  XIV.,  “  because  the  same  quantity  of  silver  will  buy  the  same  quantity  of 
corn.” 


THEIK  DISTINCTIVE  TTvOPEItTIES. 


167 


quantity  of  commodities,  that  is  to  say,  of  the  necessaries,  conveni¬ 
ences,  and  enjoyments  of  human  life,  riches  may  be  increased.  If 
value  were  the  measure  of  riches,  this  could  not  be  denied,  because 
by  scarcity  the  value  of  commodities  is  raised ;  but  if  Adam  Smith 
be  correct,  if  riches  consist  in  necessaries  and  enjoyments,  then  they 
cannot  be  increased  by  a  diminution  of  quantity. 

It  is  true,  that  the  man  in  possession  of  a  scarce  commodity  is 
richer,  if  by  means  of  it  he  can  command  more  of  the  necessaries 
and  enjoyments  of  human  life ;  but  as  the  general  stock  out  of 
which  each  man’s  riches  are  drawn  is  diminished  in  quantity,  by  all 
that  any  individual  takes  from  it,  other  men’s  shares  must  neces¬ 
sarily  be  reduced  in  proportion  as  this  favoured  individual  is  able 
to  appropriate  a  greater  quantity  to  himself. 

Let  water  become  scarce,  says  Lord  Lauderdale,  and  be  exclu¬ 
sively  possessed  by  an  individual,  and  you  will  increase  his  riches, 
because  water  will  then  have  value ;  and  if  wealth  be  the  aggregate 
of  individual  riches,  you  will  by  the  same  means  also  increase  wealth. 
You  undoubtedly  will  increase  the  riches  of  this  individual,  but  inas¬ 
much  as  the  farmer  must  sell  a  part  of  his  corn,  the  shoemaker  a 
part  of  his  shoes,  and  all  men  give  up  a  portion  of  their  possessions 
for  the  sole  purpose  of  supplying  themselves  with  water,  which  they 
before  had  for  nothing,  they  are  poorer  by  the  whole  quantity  of 
commodities  which  they  are  obliged  to  devote  to  this  purpose,  and 
the  proprietor  of  water  is  benefited  precisely  by  the  amount  of  their 
loss.  The  same  quantity  of  water,  and  the  same  quantity  of  com¬ 
modities,  are  enjoyed  by  the  whole  society,  but  they  are  differently 
distributed.  This  is,  however,  supposing  rather  a  monopoly  of 
water  than  a  scarcity  of  it.  If  it  should  be  scarce,  then  the  riches 
of  the  country  and  of  individuals  would  be  actually  diminished, 
inasmuch  as  it  would  be  deprived  of  a  portion  of  one  of  its  enjoy¬ 
ments.  The  farmer  would  not  only  have  less  corn  to  exchange  for 
the  other  commodities  which  might  be  necessary  or  desirable  to 
him,  but  he,  and  every  other  individual,  would  be  abridged  in  the 
enjoyment  of  one  of  the  most  essential  of  their  comforts.  Not  only 
would  there  be  a  different  distribution  of  riches,  but  an  actual  loss 
of  wealth. 

(It  may  be  said,  then,  of  two  countries  possessing  precisely  the 
same  quantity  of  all  the  necessaries  and  comforts  of  life,  that  they  O 
are  equally  rich,  but  the  value  of  their  respective  riches  would 
depend  on  the  comparative  facility  or  difficulty  with  which  they 
were  produced^  For  if  an  improved  piece  of  machinery  should 
enable  us  to  make  two  pair  of  stockings  instead  of  one,  without 
additional  labour,  double  the  quantity  would  be  given  in  exchange 
for  a  yard  of  cloth.  If  a  similar  improvement  be  made  in  the  ma¬ 
nufacture  of  cloth,  stockings  and  cloth  will  exchange  in  the  same 
proportions  as  before,  but  they  will  both  have  fallen  in  value ;  for 
in  exchanging  them  for  hats,  for  gold,  or  other  commodities  in 
general,  twice  the  former  quantity  must  be  given.  Extend  the 


168 


VALUE  AND  RICHES, 


improvement  to  the  production  of  gold,  and  every  other  commo¬ 
dity,  and  they  will  all  regain  their  former  proportions.  There 
will  be  double  the  quantity  of  commodities  annually  produced  in 
the  country,  and  therefore  the  wealth  of  the  country  will  be  doubled, 
but  this  wealth  will  not  have  increased  in  value. 

Although  Adam  Smith  has  given  the  correct  description  of 
riches  which  I  have  more  than  once  noticed,  he  afterwards  explains 
them  differently,  and  says,  “  that  a  man  must  be  rich  or  poor 
according  to  the  quantity  of  labour  which  he  can  afford  to  purchase.” 
Now,  this  description  differs  essentially  from  the  other,  and  is  cer¬ 
tainly  incorrect  ;  for  suppose  the  mines  were  to  become  more 
productive,  so  that  gold  and  silver  fell  in  value,  from  the  greater 
facility  of  their  production ;  or  that  velvets  were  to  be  manufac¬ 
tured  with  so  much  less  labour  than  before,  that  they  fell  to  half 
their  former  value  ;  the  riches  of  all  those  who  purchased  those 
commodities  would  be  increased  ;  one  man  might  increase  the 
quantity  of  his  plate,  another  might  buy  double  the  quantity  of 
velvet ;  but  with  the  possession  of  this  additional  plate  and  velvet, 
they  could  employ  no  more  labour  than  before  ;  because,  as  the 
exchangeable  value  of  velvet  and  of  plate  would  be  lowered,  they 
must  part  with  proportionally  more  of  these  species  of  riches  to 
purchase  a  day’s  labour.  Riches,  then,  cannot  be  estimated  by  the 
quantity  of  labour  which  they  can  purchase. 

/  From  what  has  been  said,  it  will  be  seen  that  the  wealth  of  a 
'  country  may  be  increased  in  two  ways :  it  may  be  increased  by 
^employing  a  greater  portion  of  revenue  in  the  maintenance  of 
productive  labour,  which  will  not  only  add  to  the  quantity,  but 
to  the  value  of  the  mass  of  commodities;  or  it  may  be  increased, 
without  employing  any  additional  quantity  of  labour,  by  making  the 
\  same  quantity  more  productive,  which  will  add  to  the  abundance, 
but  not  to  the  value  of  commodities. 

In  the  first  case,  a  country  would  not  only  become  rich,  but  the 
value  of  its  riches  would  increase.  It  would  become  rich  by  parsi¬ 
mony, — by  diminishing  its  expenditure  on  objects  of  luxury  and 
enjoyment,  and  employing  those  savings  in  reproduction. 

In  the  second  case,  there  will  not  necessarily  be  either  any  dimi¬ 
nished  expenditure  on  luxuries  and  enjoyments,  or  any  increased 
quantity  of  productive  labour  employed,  but,  with  the  same  labour, 
more  would  be  produced ;  wealth  would  increase,  but  not  value. 
Of  these  two  modes  of  increasing  wealth,  the  last  must  be  preferred, 
since  it  produces  the  same  effect  without  the  privation  and  dimi¬ 
nution  of  enjoyments  which  can  never  fail  to  accompany  the  first 
mode.  Capital  is  that  part  of  the  wealth  of  a  country  which  is 
employed  with  a  view  to  future  production,  and  may  be  increased 
in  the  same  manner  as  wealth.  An  additional  capital  will  be  equally 
efficacious  in  the  production  of  future  wealth,  whether  it  be  obtained 
from  improvements  in  skill  and  machinery,  or  from  using  more 
revenue  reproductively ;  for  wealth  always  depends  on  the  quantity 


I 


THEIR  DISTINCTIVE  PROPERTIES. 


169 


of  commodities  produced,  without  any  regard  to  the  facility  with 
which  the  instruments  employed  in  production  may  have  been 
procured.  A  certain  quantity  of  clothes  and  provisions  will 
maintain  and  employ  the  same  number  of  men,  and  will  therefore 
procure  the  same  quantity  of  work  to  be  done,  whether  they 
be  produced  by  the  labour  of  100  or  200  men  ;  but  they  will 
be  of  twice  the  value  if  200  have  been  employed  on  their  pro¬ 
duction. 

M.  Say,  notwithstanding  the  corrections  he  has  made  in  the 
fourth  and  last  edition  of  his  work,  “  Traite  d’Economie  Politique,” 
appears  to  me  to  have  been  singularly  unfortunate  in  his  definition 
of  riches  and  value.  lie  considers  these  two  terms  as  synonymous, 
and  that  a  man  is  rich  in  proportion  as  he  increases  the  value  of  his 
possessions,  and  is  enabled  to  command  an  abundance  of  com¬ 
modities.  “  The  value  of  incomes  is  then  increased,”  he  observes, 
“  if  they  can  procure,  it  does  not  signify  by  what  means,  a  greater 
quantity  of  products.”  According  to  M.  Say,  if  the  difficulty  of 
producing  cloth  were  to  double,  and  consequently  cloth  was  to 
exchange  for  double  the  quantity  of  the  commodities  for  which  it 
is  exchanged  before,  it  would  be  doubled  in  value,  to  which  I  give 
my  fullest  assent ;  but  if  there  were  any  peculiar  facility  in  producing 
the  commodities,  and  no  increased  difficulty  in  producing  cloth,  and 
cloth  should  in  consequence  exchange  as  before  for  double  the 
quantity  of  commodities,  M.  Say  would  still  say  that  cloth  had 
doubled  in  value,  whereas,  according  to  my  view  of  the  subject,  he 
should  say,  that  cloth  retained  its  former  value,  and  those  particular 
commodities  had  fallen  to  half  their  former  value.  Must  not  M. 
Say  be  inconsistent  with  himself  when  he  says,  that,  by  facility  of 
production,  two  sacks  of  corn  may  be  produced  by  the  same  means 
that  one  was  produced  before,  and  that  each  sack  will  therefore  fall 
to  half  its  former  value,  and  yet  maintain  that  the  clothier  who 
exchanges  his  cloth  for  two  sacks  of  corn  will  obtain  double  the 
value  he  before  obtained,  when  he  could  only  get  one  sack  in 
exchange  for  his  cloth.  If  two  sacks  be  of  the  value  that  one  was 
of  before,  he  evidently  obtains  the  same  value  and  no  more, — he 
gets,  indeed,  double  the  quantity  of  riches — double  the  quantity  of 
utility — double  the  quantity  of  what  Adam  Smith  calls  value  in  use, 
but  not  double  the  quantity  of  value,  and  therefore  M.  Say  cannot 
be  right  in  considering  value,  riches,  and  utility  to  be  synonymous. 
Indeed,  there  are  many  parts  of  M.  Say’s  work  to  which  I  can 
confidently  refer  in  support  of  the  doctrine  which  I  maintain 
respecting  the  essential  difference  between  value  and  riches, 
although  it  must  be  confessed  that  there  are  also  various  other 
passages  in  which  a  contrary  doctrine  is  maintained.  These  pas¬ 
sages  I  cannot  reconcile,  and  I  point  them  out  by  putting  them 
in  opposition  to  each  other,  that  M.  Say  may,  if  he  should  do 
me  the  honour  to  notice  these  observations  in  any  future  edition 
of  his  work,  give  such  explanations  of  his  views  as  may  remove 


170 


VALUE  AND  RICHES, 


the  difficulty  which  many  others,  r 
endeavours  to  expound  them. 

1.  In  the  exchange  of  two  products,  \vc  5. 

only  in  fact  exchange  the  productive 
services  which  have  served  to  create 
them, .  p.  504 

2.  There  is  no  real  dearness  but  that  6. 

which  arises  from  the  cost  of  produc¬ 
tion.  A  tiling  really  dear,  is  that 
which  costs  much  in  producing, . 497 

3.  The  value  of  ail  the  productive  ser-  7. 
vices  that  must  be  consumed  to  create 

a  product,  constitute  the  cost  of  pro¬ 
duction  of  that  product, . 505 

4.  It  is  utility  which  determines  the  dc-  8. 
mand  for  a  commodity,  but  it  is  the 
cost  of  its  production  which  limits  the 
extent  of  its  demand.  When  its 
utility  does  not  elevate  its  value  to 
the  level  of  the  cost  of  production,  9. 
the  thing  is  not  worth  what  it  cost ; 

it  is  a  proof  that  the  productive  ser¬ 
vices  might  be  employed  to  create  a 
commodity  of  a  superior  value.  The 
possessors  of  productive  funds,  that  is  10. 
to  say,  those  who  have  the.  disposal  of 
labour,  of  capital  or  land,  are  perpetu¬ 
ally  occupied  in  comparing  the  cost 
of  production  with  the  value  of  the  11. 
things  produced,  or,  which  comes  to 
the  same  thing,  in  comparing  the 
value  of  different  commodities  with 
each  other ;  because  the  cost  of  pro¬ 
duction  is  nothing  else  hut  the  value 
of  productive  services,  consumed  in 
forming  a  production  ;  and  the  value 
of  a  productive  service  is  nothing  else 
than  the  value  of  the  commodity,  12. 
which  is  the  result.  The  value  of  a 
commodity,  the  value  of  a  productive 
service,  the  value  of  the  cost  of  pro¬ 
duction,  are  all,  then,  similar  values, 
when  every  thing  is  left  to  its  natural 
course. 


.s  well  as  myselfj  feel  in  cui 


The  value  of  incomes  is  then  increased, 
if  they  can  procure  (it  does  not  sig¬ 
nify  by  what  means)  a  greater  quan¬ 
tity  of  products. 

Price  is  the  measure  of  the  value  of 
things,  and  their  value  is  the  measure 
of  their  utility.  2  Vol . p.  4 

Exchanges  made  freely,  show  at  the 
time,  in  the  place,  and  in  the  state  of 
society  in  which  we  are,  the  value 
which  men  attach  to  the  things  ex¬ 
changed,  . 466 

To  produce,  is  to  create  value,  by  giv¬ 
ing  or  increasing  the  utility  of  a  thing, 
and  thereby  establishing  a  demand 
for  it,  which  is  the  first  cause  of  its 

value.  Vol.  2, . 487 

Utility  being  created,  constitutes  a 
product.  The  exchangeable  value 
which  results,  is  only  the  measure  of 
this  utility,  the  measure  of  the  pro¬ 
duction  which  has  taken  place,  p.  490 
The  utility  which  people  of  a  particu¬ 
lar  country  find  in  a  product,  can  no 
otherwise  be  appreciated  than  by  the 

price  which  they  give  for  it, . 502 

This  price  is  the  measure  of  the 
utility,  which  it  has  in  the  judgment 
of  men  ;  of  the  satisfaction  which 
they  derive  from  consuming  it,  be¬ 
cause  they  would  not  prefer  consum¬ 
ing  this  utility,  if  for  the  price  which 
it  cost  they  could  acquire  a  utility 
which  would  give  them  more  satis¬ 
faction,..,.  . 506 

The  quantity  of  all  other  commodities 
which  a  person  can  immediately  ob¬ 
tain  in  exchange  for  the  commodity 
of  which  he  wishes  to  dispose,  is  at 
all  times  a  value  not  to  be  disputed. 
Vol.  2, . 4 


Tf  there  is  no  real  clearness  but  that  which  arises  from  cost  of 
production,  ( see  2.)  how  can  a  commodity  be  said  to  rise  in  value, 
(see  5.)  if  its  cost  of  production  be  not  increased?  and  merely 
because  it  will  exchange  for  more  of  a  cheap  commodity — for  more 
of  a  commodity  the  cost  of  production  of  which  has  diminished? 
When  I  give  2000  times  more  cloth  for  a  pound  of  gold  than  I  give 
for  a  pound  of  iron,  does  it  prove  that  I  attach  2000  times  more 
utility  to  gold  than  I  do  to  iron  ?  certainly  not ;  it  proves  only  as 
admitted  by  INI.  Say,  ( see  4.)  that  the  cost  of  production  of  gold  is 
b'OOO  times  greater  than  the  cost  of  production  of  iron.  If  the  cost 
of  production  of  the  two  metals  were  the  same,  f  should  give  the 
same  price  for  them  ;  but  if  utility  were  the  measure  of  value,  it  is 


THEin  DISTINCTIVE  PKOPEHTIES. 


171 


probable  I  should  give  more  for  the  iron.  It  is  the  competition  of 
the  producers  “  who  are  perpetually  employed  in  comparing  the 
cost  of  production  with  the  value  of  the  thing  produced,”  ( see  4.) 
which  regulates  the  value  of  different  commodities.  If,  then,  I 
give  one  shilling  for  a  loaf,  and  21  shillings  for  a  guinea,  it  is  no 
proof  that  this  in  my  estimation  is  the  comparative  measure  of  their 
utility. 

In  No.  4,  M.  Say  maintains,  with  scarcely  any  variation,  the 
doctrine  which  I  hold  concerning  value.  In  his  productive  services, 
he  includes  the  services  rendered  by  land,  capital,  and  labour ;  in 
mine  I  include  only  capital  and  labour,  and  wholly  exclude  land. 
Our  difference  proceeds  from  the  different  view  which  we  take  of 
i-ent :  I  always  consider  it  as  the  result  of  a  partial  monopoly, 
never  really  regulating  price,  but  rather  as  the  effect  of  it.  If  all 
rent  were  relinquished  by  landlords,  I  am  of  opinion,  that  the  com¬ 
modities  produced  on  the  land  would  be  no  cheaper,  because  there 
is  always  a  portion  of  the  same  commodities  produced  on  land,  for 
which  no  rent  is  or  can  be  paid,  as  the  surplus  produce  is  only 
sufficient  to  pay  the  profits  of  stock. 

To  conclude,  although  no  one  is  more  disposed  than  I  am  to 
estimate  highly  the  advantage  which  results  to  all  classes  of  con¬ 
sumers,  from  the  real  abundance  and  cheapness  of  commodities,  I 
cannot  agree  with  M.  Say,  in  estimating  the  value  of  a  commodity, 
by  the  abundance  of  other  commodities  for  which  it  will  exchange ; 
I  am  of  the  opinion  of  a  very  distinguished  writer,  M.  Destutt  de 
Tracy,  who  says,  that  “  To  measure  any  one  thing  is  to  compare  it 
with  a  determinate  quantity  of  that  same  thing  which  we  take  for 
a  standard  of  comparison,  for  unity.  To  measure,  then,  to  ascertain 
a  length,  a  weight,  a  value,  is  to  find  how  many  times  they  contain 
metres,  grammes,  francs,  in  a  word,  unities  of  the  same  description.” 
A  franc  is  not  a  measure  of  value  for  any  thing,  but  for  a  quantity 
of  the  same  metal  of  which  francs  are  made,  unless  francs,  and  the 
thing  to  be  measured,  can  be  referred  to  some  other  measure  which 
is  common  to  both.  This,  I  think,  they  can  be,  for  they  are  both 
the  result  of  labour ;  and,  therefore,  labour  is  a  common  measure, 
by  which  their  real  as  well  as  their  relative  value  may  be  estimated. 
This  al  so,  I  am  happy  to  say,  appears  to  be  M.  Destutt  de  Tracy’s 
opinion.*  He  says,  “as  it  is  certain  that  our  physical  and  moral 
faculties  are  alone  our  original  riches,  the  employment  of  those 
faculties,  labour  of  some  kind,  is  our  only  original  treasure,  and  that 
it  is  always  from  this  employment  that  all  those  things  are  created 
which  we  call  riches,  those  which  are  the  most  necessary  as  well  as 
those  which  are  the  most  purely  agreeable.  It  is  certain  too,  that 
all  those  things  only  represent  the  labour  which  has  created  them, 

*  Elemens  d’Lleologie,  vol.  iv.  p.  99. — In  this  work  M.  de  Tracy  has  given  a  usefu 
and  an  able  treatise  on  the  general  principles  of  Political  Economy,  and  I  am  sorry 
to  be  obliged  to  add,  that  he  supports,  by  his  authority,  the  definitions  which  M.  Say 
has  given  of  the  words  “value,”  “ '•idles,”  a~d  “utility.” 


172 


VALUE  AND  RICHES, 

and  if  they  have  a  value,  or  even  two  distinct  values,  they  can  only 
derive  them  from  that  of  the  labour  from  which  they  emanate.” 

M.  Say,  in  speaking  of  the  excellences  and  imperfections  of  the 
great  work  of  Adam  Smith,  imputes  to  him,  as  an  error,  that  “he 
attributes  to  the  labour  of  man  alone,  the  power  of  producing  value. 
A  more  correct  analysis  shows  us  that  value  is  owing  to  the  action 
of  labour,  or  rather  the  industry  of  man,  combined  with  the  action 
of  those  agents  which  nature  supplies,  and  with  that  of  capital. 
His  ignorance  of  this  principle  prevented  him  from  establishing 
the  true  theory  of  the  influence  of  machinery  in  the  production  of 
riches.” 

In  contradiction  to  the  opinion  of  Adam  Smith,  M.  Say,  in  the 
fourth  chapter,  speaks  of  the  value  which  is  given  to  commodities 
by  natural  agents,  such  as  the  sun,  the  air,  the  pressure  of  the 
atmosphere,  &c.,  which  are  sometimes  substituted  for  the  labour  of 
man,  and  sometimes  concur  with  him  in  producing.*  But  these 
natural  agents,  though  they  add  greatly  to  value  in  use ,  never  add 
exchangeable  value,  of  which  M.  Say  is  speaking,  to  a  commodity: 
as  soon  as  by  the  aid  of  machinery,  or  by  the  knowledge  of  natural 
philosophy,  you  oblige  natural  agents  to  do  the  work  which  was 
before  done  by  man,  the  exchangeable  value  of  such  work  falls 
accordingly.  If  ten  men  turned  a  corn  mill,  and  it  be  discovered 
that  by  the  assistance  of  wind,  or  of  water,  the  labour  of  these  ten 
men  may  be  spared,  the  flour  which  is  the  produce  partly  of  the 
work  performed  by  the  mill,  would  immediately  fall  in  value,  in 
proportion  to  the  quantity  of  labour  saved  ;  and  the  society  would 
be  richer  by  the  commodities  which  the  labour  of  the  ten  men  could 
produce,  the  funds  destined  for  their  maintenance  being  in  no  degree 
impaired.  M.  Say  constantly  overlooks  the  essential  difference 
that  there  is  between  value  in  use,  and  value  in  exchange. 

M.  Say  accuses  Dr  Smith  of  having  overlooked  the  value  which 
is  given  to  commodities  by  natural  agents,  and  by  machinery, 
because  he  considered  that  the  value  of  all  things  was  derived  from 
the  labour  of  man ;  but  it  does  not  appear  to  me  that  this  charge  is 
made  out ;  for  Adam  Smith  nowhere  undervalues  the  services 
which  these  natural  agents  and  machinery  perform  for  us,  but  lie 


*  “  The  first  man  who  knew  how  to  soften  metals  by  fire,  is  not  the  creator  of  the 
value  which  that  process  adds  to  the  melted  metal.  That  value  is  the  result  of  the 
physical  action  of  fire  added  to  the  industry  and  capital  of  those  who  availed  themselves 
of  this  knowledge.” 

“From  this  error  Smith  has  drawn  this  false  result,  that  the  value  of  all  productions 
represents  the  recent  or  former  labour  of  man,  or,  in  other  icords,  that  riches  are  nothing 
else  but  accumulated  labour  ;  from  which,  by  a  second  consequence,  equally  false,  labour  is  the 
sole  measure  of  riches,  or  of  the  value  of  productions.” — Chap.  iv.  p.  .31.  The  inferences 
with  which  M.  Say  concludes,  are  his  own,  and  not  Dr  Smith’s  ;  they  are  correct  if 
no  distinction  be  made  between  value  and  riches,  and  in  this  passage  M.  Say  makes 
none :  but  though  Adam  Smith,  who  defined  riches  to  consist  in  the  abundance  of 
necessaries,  convenience  and  enjoyments  of  human  life,  would  have  allowed  that 
machines  and  natural  agents  might  very  greatly  add  to  the  riches  of  a  country,  lie 
would  not  have  allowed  that  they  add  anything  to  the  value  of  those  riches. 


THEIR  DISTINCTIVE  PROP’'  LIES.  173 

\  \ 

very  justly  distinguishes  the  nature  of  the  which  they  add  to 
commodities — they  are  serviceable  to  us,  Teasing  the  abun¬ 

dance  of  productions,  by  making  men  richei  adding  to  value  in 
use ;  but  as  they  perform  their  work  gratuitOi  ,  as  nothing  is  paid 
for  the  use  of  air,  of  heat,  and  of  water,  the  assistance  which  they 
afford  us,  adds  nothing  to  value  in  exchange. 


CHAPTER  XXI. 


EFFECTS  OF  ACCUMULATION  ON  PROFITS  AND  INTEREST. 

From  the  account  which  has  been  given  of  the  profits  of  stock,  it 
will  appear  that  no  accumulation  of  capital  will  permanently  lower 
profits,  unless  there  be  some  permanent  cause  for  the  rise  of  wages. 
If  the  funds  for  the  maintenance  of  labour  were  doubled,  trebled, 
or  quadrupled,  there  would  not  long  be  any  difficulty  in  procuring 
the  requisite  number  of  hands,  to  be  employed  by  those  funds;  but 
owing  to  the  increasing  difficulty  of  making  constant  additions  to 
the  food  of  the  country,  funds  of  the  same  value  would  probably  not 
maintain  the  same  quantity  of  labour.  If  the  necessaries  of  the 
workman  could  be  constantly  increased  with  the  same  facility,  there 
could  be  no  permanent  alteration  in  the  rate  of  profit  or  wages,  to 
whatever  amount  capital  might  be  accumulated.  Adam  Smith, 
however,  uniformly  ascribes  tho  fall  of  profits  to  the  accumulation 
of  capital,  and  to  the  competition  which  will  result  from  it,  without 
ever  adverting  to  the  increasing  difficulty  of  providing  food  for  the 
additional  number  of  labourers  which  the  additional  capital  will 
employ.  “  The  increase  of  stock,”  he  says,  “  which  raises  wages, 
tends  to  lower  profit.  When  the  stocks  of  many  rich  merchants 
are  turned  into  the  same  trade,  their  mutual  competition  naturally 
tends  to  lower  its  profit ;  and  when  there  is  a  like  increase  of  stock 
in  all  the  different  trades  carried  on  in  the  same  society,  the  same 
competition  must  produce  the  same  effect  in  all.”  Adam  Smith 
speaks  here  of  a  rise  of  wages,  but  it  is  of  a  temporary  rise,  proceed¬ 
ing  from  increased  funds  before  the  population  is  increased ;  and  he 
does  not  appear  to  see,  that  at  the  same  time  that  capital  is  increased, 
the  work  to  be  effected  by  capital  is  increased  in  the  same  proportion. 
M.  Say  has,  however,  most  satisfactorily  shown,  that  there  is  no 
amount  of  capital  which  may  not  be  employed  in  a  country,  because 
demand  is  only  limited  by  production.  No  man  produces  but  with 
a  view  to  consume  or  sell,  and  he  never  sells  but  with  an  intention 
to  purchase  some  other  commodity,  which  may  be  immediately 
useful  to  him,  or  which  may  contribute  to  future  production.  By 
producing,  then,  he  necessarily  becomes  either  the  consumer  of  his 
own  goods,  or  the  purchaser  and  consumer  of  the  goods  of  some 
other  person.  It  is  not  to  be  supposed  that  he  should,  for  any  length 
of  time,  be  ill-informed  of  the  commodities  which  he  can  most  ad- 


EFFECTS  OF  ACCUMULATION  ON  PROFITS  AND  INTEREST.  I  To 


vantageously  produce,  to  attain  the  object  which  he  has  in  view, 
namely  the  possession  of  other  goods ;  and,  therefore,  it  is  not 
probafej  that  he  will  continually  produce  a  commodity  for  which 
there  is  no  demand.* 

There  cannot,  then,  be  accumulated  in  a  country  any  amount  of 
capital  which  cannot  be  employed  productively,  until  wages  rise  so 
high  in  consequence  of  the  rise  of  necessaries,  and  so  little  conse¬ 
quently  remains  for  the  profits  of  stock,  that  the  motive  for 
accumulation  ceases.f  While  the  profits  of  stock  are  high,  men 
will  have  a  motive  to  accumulate.  Whilst  a  man  has  any  vvislied- 
for  gratification  unsupplied,  he  will  have  a  demand  for  more  com¬ 
modities;  and  it  will  be  an  effectual  demand  while  he  has  any  new 
value  to  offer  in  exchange  for  them.  If  ten  thousand  pounds  were 
given  to  a  man  having  100,000k  per  annum,  he  would  not  lock  it 
up  in  a  chest,  but  would  either  increase  his  expenses  by  10,000/.  ; 
employ  it  himself  productively,  or  lend  it  to  some  other  person  for 
that  purpose ;  in  either  case,  demand  would  be  increased,  although 
it  would  be  for  different  objects.  If  he  increased  his  expenses,  his 
effectual  demand  might  probably  be  for  buildings,  furniture,  or 
some  such  enjoyment.  If  he  employed  his  10,000/.  productively, 
his  effectual  demand  woidd  be  for  food,  clothing,  and  raw  material, 
which  might  set  new  labourers  to  work ;  but  still  it  would  be 
demand  4 

*  Adam  Smith  speaks  of  Holland,  as  affording  an  instance  of  the  fall  of  profits  from 
the  accumulation  of  capital,  and  from  every  employment  being  consequently  over¬ 
charged.  “'The  government  there  borrow  at  2  per  cent.,  and  private  people  of  good 
credit,  at  3  per  cent.”  But  it  should  be  remembered,  that  Holland  was  obliged  to 
import  almost  all  the  corn  which  she  consumed,  and  by  imposing  heavy  taxes  on  the 
necessaries  of  the  labourer,  she  further  raised  the  wages  of  labour.  These  facts  will 
sufficiently  account  for  the  low  rate  of  profits  and  interest  in  Holland. 

f  Is  the  following  quite  consistent  with  M.  Say’s  principle  ?  “  The  more  disposable 

capitals  are  abundant  in  proportion  to  the  extent  of  employment  for  them,  the  more 
will  the  rate  of  interest  on  loans  of  capital  fall.” — Vol.  ii.  p.  108.  If  capital  to  any 
extent  can  be  employed  by  a  country,  how  can  it  be  said  to  lie  abundant,  compared 
with  the  extent  of  employment  for  it? 

£  Adam  Smith  says,  that  “  When  the  produce  of  any  particular  branch  of  industry 
exceeds  what  the  demand  of  the  country  requires,  the  surplus  must  be  sent  abroad, 
and  exchanged  for  something  for  which  there  is  a  demand  at  home.  Without  such 
exportation,  a  part  of  the  productive  labour  of  the  country  must  cease,  and  the  value  of  its 
annual  produce  diminish.  The  land  and  labour  of  Great  Britain  produce  generally 
more  corn,  woollens,  and  hardware,  than  the  demand  of  the  home  market  requires. 
The  surplus  part  of  them,  therefore,  must  be  sent  abroad,  and  exchanged  for  some¬ 
thing  for  which  there  is  a  demand  at  home.  It  is  only  by  means  of  such  exportation 
that  this  surplus  can  acquire  a  value  sufficient  to  compensate  the  labour  and  expense 
of  producing  it.”  One  would  be  led  to  think  by  the  above  passage,  that  Adam  Smith 
concluded  we  were  under  some  necessity  of  producing  a  surplus  of  corn,  w  oollen  goods, 
and  hardware,  and  that  the  capital  which  produced  them  could  not  be  otherwise 
employed.  It  is,  however,  always  a  matter  of  choice  in  what  way  a  capital  shall  be 
employed,  and  therefore  there  can  never  for  any  length  of  time  be  a  surplus  of  any 
commodity ;  for  if  there  were,  it  would  fall  below  its  natural  price,  and  capital  would 
be  removed  to  some  more  profitable  employment.  No  writer  has  more  satisfactorily 
and  ably  shown  than  Dr  Smith  the  tendency  of  capital  to  move  from  employments  in 
which  the  goods  produced  do  not  repay  by  their  price  the  whole  expenses,  including 
the  ordinary  profits,  of  producing  and  bringing  them  to  market. — See  Chap.  x. 
Book  i. 


176 


EFFECTS  OF  ACCUMULATION 


Productions  are  always  bought  by  productions,  or  by  services ; 
money  is  only  the  medium  by  which  the  exchange  is  effc  1.  Too 
much  of  a  particular  commodity  may  be  produced,  of  v  '  i  there 
may  be  such  a  glut  in  the  market  as  not  to  repay  the  Capital  ex¬ 
pended  on  it ;  but  this  cannot  be  the  case  with  respect  to  all  com¬ 
modities  ;  the  demand  for  corn  is  limited  by  the  mouths  which  arc 
to  eat  it,  foi  shoes  and  coats  by  the  persons  who  are  to  wear  them ; 
but  though  a  community,  or  a  part  of  a  community,  may  have  as 
much  corn,  and  as  many  hats  and  shoes  as  it  is  able,  or  may  wish 
to  consume,  the  same  cannot  be  said  of  every  commodity  produced 
by  nature  or  by  art.  Some  would  consume  more  wine  if  they  had 
the  ability  to  procure  it.  Others,  having  enough  of  wine,  would 
wish  to  increase  the  quantity  or  improve  the  quality  of  their  furni¬ 
ture.  Others  might  wish  to  ornament  their  grounds,  or  to  enlarge 
their  houses.  The  wish  to  do  all  or  some  of  these  is  implanted  in 
every  man’s  breast ;  nothing  is  required  but  the  means,  and  nothing- 
can  afford  the  means  but  an  increase  of  production.  If  I  had  food 
and  necessaries  at  my  disposal,  I  should  not  be  long  in  want  of 
workmen  who  would  put  me  in  possession  of  some  of  the  objects 
most  useful  or  most  desirable  to  me. 

Whether  these  increased  productions,  and  the  consequent  demand 
which  they  occasion,  shall  or  shall  not  lower  profits,  depends  solely 
on  the  rise  of  wages  ;  and  the  rise  of  wages,  excepting  for  a  limited 
period,  on  the  facility  of  producing  the  food  and  necessaries  of  the 
labourer.  I  say  excepting  for  a  limited  period,  because  no  point  is 
better  established,  than  that  the  supply  of  labourers  will  always 
ultimately  be  in  proportion  to  the  means  of  supporting  them. 

There  is  only  one  case,  and  that  will  be  temporary,  in  which  the 
accumulation  of  capital  with  a  low  price  of  food  may  be  attended 
with  a  fall  of  profits ;  and  that  is,  when  the  funds  for  the  mainte¬ 
nance  of  labour  increase  much  more  rapidly  than  population; — 
wages  will  then  be  high,  and  profits  low.  If  every  man  were  to 
forego  the  use  of  luxuries,  and  be  intent  only  on  accumulation,  a 
quantity  of  necessaries  might  be  produced,  for  which  there  could 
not  be  any  immediate  consumption.  Of  commodities  so  limited  in 
number,  there  might  undoubtedly  be  a  universal  glut,  and  conse¬ 
quently  there  might  neither  be  demand  for  an  additional  quantity 
of  such  commodities,  nor  profits  on  the  employment  of  more  capital. 
If  men  ceased  to  consume,  they  would  cease  to  produce.  This 
admission  does  not  impugn  the  general  principle.  In  such  a  country 
as  England,  for  example,  it  is  difficult  to  suppose  that  there  can  be 
any  disposition  to  devote  the  whole  capital  and  labour  of  the  country 
to  the  production  of  necessaries  only. 

When  merchants  engage  their  capitals  in  foreign  trade,  or  in  the 
carrying  trade,  it  is  always  from  choice,  and  never  from  necessity  : 
it  is  because  in  that  trade  their  profits  will  be  somewhat  greater 
than  in  the  home  trade. 

Adam  Smith  has  justly  observed  u  that  the  desire  of  food  is 


ON  PROFITS  AND  INTEREST. 


177 


limited  in  every  man  by  tbc  narrow  capacity  of  the  human  stomach, 
but  the  desire  of  the  conveniences  and  ornaments  of  building,  dress, 
equipage,  and  household  furniture,  seems  to  have  no  limit  or  certain 
boundary.”  Nature,  then,  has  necessarily  limited  the  amount  of 
capital  which  can  at  any  one  time  be  profitably  engaged  in  agriculture, 
but  she  has  placed  no  limits  to  the  amount  of  capital  that  may  be 
employed  in  procuring  “  the  conveniences  and  ornaments”  of  life. 
To  procure  these  gratifications  in  the  greatest  abundance  is  the 
object  in  view,  and  it  is  only  because  foreign  trade,  or  the  carrying 
ti'ade,  will  accomplish  it  better,  that  men  engage  in  them  in  pre¬ 
ference  to  manufacturing  the  commodities  required,  or  a  substitute 
for  them,  at  home.  If,  however,  from  peculiar  circumstances,  we 
were  precluded  from  engaging  capital  in  foreign  trade,  or  in  the 
carrying  trade,  we  should,  though  with  less  advantage,  employ  it 
at  home ;  and  while  there  is  no  limit  to  the  desire  of  “  conveniences, 
ornaments  of  building,  dress,  equipage,  and  household  furniture,” 
there  can  be  no  limit  to  the  capital  that  may  be  employed  in  pro¬ 
curing  them,  except  that  which  bounds  our  power  to  maintain  the 
workmen  who  are  to  produce  them. 

Adam  Smith,  however,  speaks  of  the  carrying  trade  as  one  not 
of  choice,  but  of  necessity  ;  as  if  the  capital  engaged  in  it  would  be 
inert  if  not  so  employed,  as  if  the  capital  in  the  home  trade  could 
overflow,  if  not  confined  to  a  limited  amount.  He  says,  “  when 
the  capital  stock  of  any  country  is  increased  to  such  a  degree  that 
it  cannot  he  all  employed  in  supplying  the  consumption,  and  supporting 
the  productive  labour  of  that  particular  country,  the  surplus  part  of  it 
naturally  disgorges  itself  into  the  carrying  trade,  and  is  employed 
in  performing  the  same  offices  to  other  countries.” 

u  About  ninety-six  thousand  hogsheads  of  tobacco  are  annually 
purchased  with  a  part  of  the  surplus  produce  of  British  industry. 
But  the  demand  of  Great  Britain  does  not  require,  perhaps,  more 
than  fourteen  thousand.  If  the  remaining  eighty-two  thousand, 
therefore,  could  not  be  sent  abroad  and  exchanged  for  something 
more  in  demand  at  home,  the  importation  of  them  would  cease  im¬ 
mediately,  and  with  it  the  productive  labour  of  all  the  inhabitants  of 
Great  Britain,  who  are  at  present  employed  in  preparing  the  goods 
with  u'hich  these  eighty-two  thousand  hogsheads  are  annually  pur¬ 
chased .”  But  could  not  this  portion  of  the  productive  labour  of 
Great  Britain  be  employed  in  preparing  some  other  sort  of  goods, 
with  which  something  more  in  demand  at  home  might  be  purchased  ? 
And  if  it  could  not,  might  we  not  employ  this  productive  labour, 
though  with  less  advantage,  in  making  those  goods  in  demand  at 
home,  or  at  least  some  substitute  for  them  ?  If  we  wanted  velvets, 
might  we  not  attempt  to  make  velvets  ;  and  if  we  could  not  succeed, 
might  we  not  make  more  cloth,  or  some  other  object  desirable  to  us  ? 

We  manufacture  commodities,  and  with  them  buy  goods  abroad, 
because  we  can  obtain  a  greater  quantity  than  we  could  make  at 
home.  Deprive  us  of  this  trade,  and  we  immediately  manufacture 


EFFECTS  OF  ACCUMULATION 


ITS 


again  for  ourselves.  But  this  opinion  of  Adam  Smith  is  at  variance 
Avith  all  his  general  doctrines  on  this  subject.  “  If  a  foreign  country 
can  supply  us  with  a  commodity  cheaper  than  avc  ourselves  can 
make  it,  better  buy  it  of  them  with  some  part  of  the  produce  of 
our  own  industry,  employed  in  a  way  in  Avhich  avc  have  some 
advantage.  The  general  industry  of  the  country  being  always  in 
proportion  to  the  capital  which  employs  it,  aa  ill  not  thereby  be  dimi¬ 
nished,  but  only  left  to  find  out  the  way  in  Avhich  it  can  be  employed 
Avith  the  greatest  advantage.” 

Again.  “  Those,  therefore,  aa  Iio  have  the  command  of  more  food 
than  they  themselves  can  consume,  are  ahvays  Avilling  to  exchange 
the  surplus,  or,  what  is  the  same  thing,  the  price  of  it,  for  gratifi¬ 
cations  of  another  kind.  What  is  over  and  above  satisfying  the 
limited  desire,  is  given  for  the  amusement  of  those  desires  Avhich 
cannot  be  satisfied,  but  seem  to  lie  altogether  endless.  The  poor, 
in  order  to  obtain  food,  exert  themselves  to  gratify  those  fancies  of 
the  rich  ;  and  to  obtain  it  more  certainly,  they  A'ie  with  one  another 
in  the  cheapness  and  perfection  of  their  work.  The  number  of 
workmen  increases  with  the  increasing  quantity  of  food,  or  with 
the  growing  improvement  and  cultivation  of  the  lands  ;  and  as  the 
nature  of  their  business  admits  of  the  utmost  subdivisions  of  labours, 
the  quantity  of  materials  which  they  can  work  up  increases  in  a 
much  greater  proportion  than  their  numbers.  Hence  arises  a  de¬ 
mand  for  every  sort  of  material  Avhich  human  invention  can  employ, 
either  usefully  or  ornamentally,  in  building,  dress,  equipage,  or 
household  furniture  :  for  the  fossils  and  minerals  contained  in  the 
boAvels  of  the  earth,  the  precious  metals,  and  the  precious  stones.” 

It  folloAvs,  then,  from  these  admissions,  that  there  is  no  limit  to 
demand — no  limit  to  the  employment  of  capital  while  it  yields  any 
profit,  and  that  hoAvever  abundant  capital  may  become,  there  is  no 
other  adequate  reason  for  a  fall  of  profit  but  a  rise  of  wages,  and 
further,  it  may  be  added  that  the  only  adequate  and  permanent 
cause  for  the  rise  of  Avages  is  the  increasing  difficulty  of  providing 
food  and  necessaries  for  the  increasing  number  of  Avorkmen. 

Adam  Smith  has  justly  observed,  that  it  is  extremely  difficult  to 
determine  the  rate  of  the  profits  of  stock.  u  Profit  is  so  fluctuating, 
that  even  in  a  particular  trade,  and  much  more  in  trades  in  general, 
it  Avould  be  difficult  to  state  the  average  rate  of  it.  To  judge  of 
Avhat  it  may  have  been  formerly,  or  in  remote  periods  of  time,  Avith 
any  degree  of  precision,  must  be  altogether  impossible.”  Yet  since 
it  is  evident  that  much  Avill  be  given  for  the  use  of  mone}’,  Avhen 
much  can  be  made  by  it,  lie  suggests  that  u  the  market  rate  of 
interest  Avill  lead  us  to  form  some  notion  of  the  rate  of  profits,  and 
the  history  of  the  progress  of  interest  afford  us  that  of  the  progress 
of  profits.”  Undoubtedly,  if  the  market  rate  of  interest  could  be 
accurately  known  for  any  considerable  period,  Ave  should  have  a 
tolerably  correct  criterion,  by  Avhich  to  estimate  the  progress  of  profits. 

But  in  all  countries,  from  mistaken  notions  of  policy,  the  State 


OS  PROFITS  AND  INTEREST. 


179 


has  interfered  to  prevent  a  fair  and  free  market  rate  of  interest,  by 
imposing  heavy  and  ruinous  penalties  on  all  those  who  shall  take 
more  than  the  rate  fixed  by  law.  In  all  countries  probably  these 
laws  are  evaded,  but  records  give  us  little  information  on  this  head, 
and  point  out  rather  the  legal  and  fixed  rate,  than  the  market  rate 
of  interest.  During  the  present  war,  Exchequer  and  Navy  Bills 
have  been  frequently  at  so  high  a  discount,  as  to  afford  the  pur¬ 
chasers  of  them  7,  8  per  cent.,  or  a  greater  rate  of  interest  for  their 
money.  Loans  have  been  raised  by  Government  at  an  interest 
exceeding  6  per  cent.,  and  individuals  have  been  frequently  obliged, 
by  indirect  means,  to  pay  more  than  10  per  cent,  for  the  interest  of 
money  ;  vet  during  this  same  period  the  legal  rate  of  interest  has 
been  uniformly  at  5  per  cent.  Little  dependence  for  information, 
then,  can  be  placed  on  that  which  is  the  fixed  and  legal  rate  of 
interest,  when  we  find  it  inav  differ  so  considerably  from  the  market 
rate.  Adam  Smith  informs  us,  that  from  the  37th  of  Henry  VII!. 
to  21st  of  James  I.,  10  per  cent,  continued  to  be  the  legal  rate  of 
interest.  Soon  after  the  Restoration,  it  was  reduced  to  6  per  cent., 
and  by  the  12th  of  Anne,  to  5  per  cent.  He  thinks  the  legal  rate 
followed,  and  did  not  precede  the  market  rate  of  interest.  Before 
the  American  war,  Government  borrowed  at  3  per  cent.,  and  the 
people  of  credit  in  the  capital,  and  in  many  other  parts  of  the  king¬ 
dom  at  3£,  4.  and  4|  per  cent. 

The  rate  of  interest,  though  ultimately  and  permanently-  governed 
by  the  rate  of  profit,  is,  however,  subject  to  temporary  variations 
from  other  causes.  With  every  fluctuation  in  the  quantity  and 
value  of  money,  the  prices  of  commodities  naturally  varv.  Thev 
vary  also,  as  we  have  already  shown,  from  the  alteration  in  the  pro¬ 
portion  of  supply  to  demand,  although  there  should  not  be  either 
greater  facility  or  difficulty  of  production.  When  the  market  prices 
of  goods  fall  from  an  abundant  supply,  from  a  diminished  demand, 
or  from  a  rise  in  the  value  of  money,  a  manufacturer  naturally  accu¬ 
mulates  an  unusual  quantity  of  finished  goods,  being  unwilling  to 
sell  them  at  very  depressed  prices.  To  meet  his  ordinary  payments, 
for  which  he  used  to  depend  on  the  sale  of  his  goods,  he  now  endea¬ 
vours  to  borrow  on  credit,  and  is  often  obliged  to  give  an  increased 
rate  of  interest.  This,  however,  is  but  of  temporary  duration  ;  for 
either  the  manufacturers  expectations  were  well  grounded,  and  the 
market  price  of  his  commodities  rises,  or  he  discovers  that  there  is  a 
permanently  diminished  demand,  and  he  no  longer  resists  the  course 
of  affairs  :  prices  fall,  and  money  and  interest  regain  their  real  value. 
If,  by  the  discovery  of  a  new  mine,  by  the  abuses  of  banking,  or  by 
any  other  cause,  the  quantity  of  money  be  greatly  increased,  its  ulti¬ 
mate  effect  is  to  raise  the  prices  of  commodities  in  proportion  to  the 
increased  quantity  of  money:  but  there  is  probably  always  an  interval, 
during  which  some  effect  is  produced  on  the  rate  of  interest. 

The  price  of  funded  property  is  not  a  steady  criterion  by  which 
to  judge  of  the  rate  of  interest.  In  time  of  war,  the  stock  market 


ISO  EFFECTS  OF  ACCUMULATION  ON  PROFITS  AND  INTEREST. 


is  so  loaded  by  the  continual  loans  of  Government,  that  the  price  of 
stock  has  not  time  to  settle  at  its  fair  level,  before  a  new  operation 
jf  funding  takes  place,  or  it  is  affected  by  anticipation  of  political 
events.  In  time  of  peace,  on  the  contrary,  the  operations  of  the 
sinking  fund,  the  unwillingness  which  a  particular  class  of  persons  feel 
to  divert  their  funds  to  any  other  employment  than  that  to  which 
they  have  been  accustomed,  which  they  think  secure,  and  in  which 
their  dividends  are  paid  with  the  utmost  regularity,  elevates  the 
price  of  stock,  and  consequently  depresses  the  rate  of  interest  on 
these  securities  below  the  general  market  rate.  It  is  observable, 
too,  that  for  different  securities,  Government  pays  very  different 
rates  of  interest.  Whilst  100k  capital  in  5  per  cent,  stock  is  selling 
for  95k,  an  exchequer  bill  of  100k  will  be  sometimes  selling  for 
100/.  5s.,  for  which  exchequer  bill  no  more  interest  will  be  annually 
paid  than  4k  11s.  3d. :  one  of  these  securities  pays  to  a  purchaser, 
at  the  above  prices,  an  interest  of  more  than  5j  per  cent.,  the  other 
but  little  more  than  4^- ;  a  certain  quantity  of  these  exchequer  bills 
is  required  as  a  safe  and  marketable  investment  for  bankers  ;  if  they 
were  increased  much  beyond  this  demand,  they  would  probably 
be  as  much  depreciated  as  the  5  per  cent,  stock.  A  stock  paying 
3  per  cent,  per  annum  will  always  sell  at  a  proportionally  greater  price 
than  stock  paying  5  per  cent.,  for  the  capital  debt  of  neither  can  be 
discharged  but  at  par,  or  100k  money  for  100/.  stock.  The  market 
rate  of  interest  may  fall  to  4  per  cent.,  and  Government  would  then 
pay  the  holder  of  5  per  cent,  stock  at  par,  unless  he  consented  to 
take  4  per  cent,  on  some  diminished  rate  of  interest  under  5  per 
cent.  :  they  would  have  no  advantage  from  so  paying  the  holder  of 
3  per  cent,  stock,  till  the  market  rate  of  interest  had  fallen  below 
3  per  cent,  per  annum.  To  pay  the  interest  on  the  national  debt, 
large  sums  of  money  are  withdrawn  from  circulation  four  times  in 
the  year  for  a  few  days.  These  demands  for  money  being  only 
temporary,  seldom  affect  prices ;  they  are  generally  surmounted  by 
the  payment  of  a  large  rate  of  interest.* 

*  All  kinds  of  public  loans,”  observes  M.  Say,  are  attended  with  the  inconve¬ 
nience  of  withdrawing  capital,  or  portions  of  capital,  from  productive  employments,  to 
devote  them  to  consumption  ;  and  when  they  take  place  in  a  country,  the  Government 
of  which  does  not  inspire  muck  confidence,  they  have  the  further  inconvenience  of  raising 
the  interest  of  capital.  Who  would  lend  at  5  per  cent,  per  annum  to  agriculture,  to 
manufacturers,  and  to  commerce,  when  a  borrower  may  be  found  ready  to  pay  an 
interest  of  7  or  8  per  cent.  ?  That  sort  of  income,  which  is  called  profit  of  stock,  would 
rise  then  at  the  expense  of  the  consumer.  Consumption  would  be  reduced  by  the  rise 
in  the  price  of  produce ;  and  the  other  productive  services  would  be  less  in  demand, 
less  well  paid.  The  whole  nation,  capitalists  excepted,  would  be  the  sufferers  front 
such  a  state  of  things.”  To  the  question,  “  who  would  lend  money  to  farmers,  manu¬ 
facturers,  and  merchants,  at  u  percent,  per  annum,  when  another  borrower,  having 
little  credit,  would  give  7  or  8  ?  ”  I  reply,  that  every  prudent  and  reasonable  man 
would.  Because  the  rate  of  interest  is  7  or  8  per  cent,  there,  where  the  lender  runs 
extraordinary  risk,  is  this  any  reason  that  it  should  be  equally  high  in  those  places 
where  they  are  secured  from  such  risks  ?  M.  Say  allows,  that  the  rate  of  interest 
depends  on  the  rate  of  profits  ;  but  it  does  not  therefore  follow,  that  the  rate  of  profits 
depends  on  the  rate  of  interest.  One  is  the  cause,  the  other  the  effect,  and  it  is  im¬ 
possible  for  any  circumstances  to  make  them  change  places. 


CHAPTER  XXII. 


BOUNTIES  ON  EXPORTATION,  AND  PROHIBITIONS  OF 
\  IMPORTATION. 


A  bounty  on  the  exportation  of  corn  tends  to  lower  its  price  to 
the  foreign  consumer,  but  it  has  no  permanent  effect  on  its  price 
inTEtp  home  market. 

pose  that  to  afford  the  usual  and  general  profits  of  stock,  the 
price  of  corn  should  in  England  be  4 l,  per  quarter :  it  could  not 
then  be  exported  to  foreign  countries  where  it  sold  for  31.  1 5s.  per 
quarter.  But  if  a  bounty  of  10s.  per  quarter  were  given  on  expor¬ 
tation,  it  could  be  sold  in  the  foreign  market  at  31.  10s.,  and  con¬ 
sequently  the  same  profit  would  be  afforded  to  the  corn  grower, 
whether  he  sold  it  at  3k  10s.  in  the  foreign,  or  at  41.  in  the  home 
market. 

A  bounty  then,  which  should  lower  the  price  of  British  corn  in 
the  foreign  country,  below  the  cost  of  producing  corn  in  that  country, 
would  naturally  extend  the  demand  for  British,  and  diminish  the 
demand  for  their  own  corn.  This  extension  of  demand  for  British 
corn  could  not  fail  to  raise  its  price  for  a  time  in  the  home  market, 
and  during  that  time  to  prevent  also  its  falling  so  low  in  the  foreign 
market  as  the  bounty  has  a  tendency,  to  effect.  But  the  causes 
which  would  thus  operate  on  the  market  price  of  corn  in  England 
would  produce  no  effect  whatever  on  its  natural  price,  or  its  real 
cost  of  production.  To  grow  corn  would  neither  require  more 
labour  nor  more  capital,  and,  consequently,  if  the  profifs  of  the 
farmer’s  stock  were  before  only  equal  to  the  profits  of  the  stock  of 
other  traders,  they  will,  after  the  rise  of  price,  be  considerably 
above  them.  By  raising  the  profits  of  the  farmer’s  stock,  the 
bounty  will  operate  as  an  encouragement  to  agriculture,  and  capital 
will  be  withdrawn  from  manufactures  to  be  employed  on  the  land, 
till  the  enlarged  demand  for  the  foreign  market  has  been  supplied, 
when  the  price  of  corn  will  again  fall  in  the  home  market  to  its 
natural  and  necessary  price,  and  profits  will  be  again  at  their 
ordinary  and  accustomed  level.  The  increased  supply  of  grain 
operating  on  the  foreign  market,  will  also  lower  its  price  in  the 
country  to  which  it  is  exported,  and  will  thereby  restrict  the  profits 
of  the  exporter  to  the  lowest  rate  at  which  he  can  afford  to  trade. 

The  ultimate  effect  then  or  a  boumv  on  the  exportation  of  corn 


182 


is  not  to  raise  oi>-ttK^ower.  thu  priccyin  the  home  market,  butjto/ 
price,  of  corn  to  the  foreign  consumer — to  the  whole/" 


ux&.er  tut 

extent,  of  the  bounty,  If  the  price  of  corn  had  not  before  been  low e/r 
in  the  foreign,  than  in  the  home  market — and  in  a  less  degree,  fit' 
the  price  in  the  home  had  been  above  the  price  in  the  foreign 
market. 

A  writer  in  the  fifth  vol.  of  the  Edinburgh  Review ,  on  the  subject 
of  a  bounty  on  the  exportation  of  corn,  has  very  clearly  pointed 
out  its  effects  on  the  foreign  and  home  demand.  He  has  also 
justly  remarked,  that  it  would  not  fail  to  give  encouragement  to 
agriculture  in  the  exporting  country;  but  he  appears  to  have  im¬ 
bibed  the  common  error  which  has  misled  Dr  Smith,  and,  I  believe, 
most  other  writers  on  this  subject.  He  supposes,  because  the  price 
of  corn  ultimately  regulates  wages,  that  therefore  it  will  regulate 
the  price  of  all  other  commodities.  Pie  says  that  the  bounty,  “  by 


raising  the  profits  of  farming,  will  operate  as  an  encouragement  to 
husbandry  ;  by  raising  the  price  of  corn  to  the  consumers  at  home, 
it  will  diminish  for  the  time  their  power  of  purchasing  this  neces¬ 
sary  of  life,  and  thus  abridge  their  real  wealth.  It  is  evident, 
however,  that  this  last  effect  must  be  temporary :  the  wages  of  the 
labouring  consumers  had  been  adjusted  before  by  competition,  and 
the  same  principle  will  adjust  them  again  to  the  same  rate,  by 
raising  the  money  price  of  labour,  and  through  that ,  of  other  commo¬ 
dities ,  to  the  money  price  of  corn.  \The  bounty  upon  exportation, 


vine  uoimiy  upon  exj 

thereforey-wiffTiltimately  raise  the  monjey^hffce'yffxo^uxin  the  home 
mtrfketj  jnot  directly,  dlovygyfffy-  but-  -throngh-  the-  -medium  -of-  \yn 
extended-del) mi u  1  in  thedfdreign  market,  and  a  consequent  enhaneve- 
memL-of  thc^real  price  at  home  i  JmdTtJns  rise  of  the  monerjpricfi 
when  it  has  onceoeen  conwVtmicufed  to  other  commodities ,  will  of  course 
become  fixed'' 

If,  however,  I  have  succeeded  in  showing  that  it  is  not  the  rise 
in  the  money  wages  of  labour  which  raises  the  price  of  commodities, 
but  that  such  rise  always  affects  profits,  it  will  follow  that  the  prices 
of  commodities  would  not  rise  in  consequence  of  a  bounty. 

But  a  temporary  rise  in  the  price  of  corn,  produced  by  an 
increased  demand  from  abroad,  would  have  no  effect  on  the  money 
price  of  labour.  The  rise  of  corn  is  occasioned  by  a  competition 
for  that  supply  which  was  before  exclusively  appropriated  to  the 
home  market.  By  raising  profits,  additional  capital  is  employed  in 
agriculture,  and  the  increased  supply  is  obtained;  but  till  it  be 
obtained,  the  high  price  is  absolutely  necessary  to  proportion  the 
consumption  to  the  supply,  which  would  be  counteracted  by  a  rise 
of  wages.  The  rise  of  corn  is  the  consequence  of  its  scarcity,  and 
is  the  means  by  which  the  demand  of  the  home  purchasers  is  dimi¬ 
nished.  If  wages  were  increased,  the  competition  would  increase, 
and  a  further  rise  of  the  price  of  corn  would  become  necessary, 
in  this  account  of  the  effects  of  a  bounty,  nothing  has  been  supposed 
to  occur  to  raise  the  natural  price  of  corn,  by  which  its  market 


PROHIBITIONS  OF  IMPORTATION. 


183 


price  is  ultimately  governed ;  for  it  has  not  been  supposed  that  any 
additional  labour  would  be  required  on  the  land  to  insure  a  given 
production,  and  this  alone  can  raise  its  natural  price.  If  the  natural 
price  of  cloth  were  20s.  per  yard,  a  great  increase  in  the  foreign 
demand  might  raise  the  price  to  25s.,  or  more,  but  the  profits 
which  would  then  be  made  by  the  clothier  would  not  fail  to  attract 
capital  in  that  direction,  and  although  the  demand  should  be 
doubled,  trebled,  or  quadrupled,  the  supply  would  ultimately  be 
obtained,  and  cloth  would  fall  to  its  natural  price  of  20s.  So,  in 
the  supplv  of  corn,  although  we  should  export  200,000,  300,000, 
or  800,000  quarters  annually,  it  would  ultimately  be  produced  at 
its  natural  price,  which  never  varies,  unless  a  different  quantity 
of  labour  becomes  necessary  to  production. 

Perhaps  in  no  part  of  Adam  Smith’s  justly  celebrated  work  are 
his  conclusions  more  liatfieT to  objection  than  in  the  chapter  on 
bounties.  In  the  first  place,  he  speaks  of  corn  as  of  a  commodity 
of  which  th'e_prwJu^tion'^^niot_dD^4ncreasFd  in  consequence  of  a 
'bounty  on  exportafkm-?-lji^upposesAftvaiuaJ3ly^that  it  acts  only  on 
the  quantity  actually  prodneodj^uud ,  is^no^-stmndus  to  farther 

tfrodjaetioin _ In  years  of  plenty,”  he  says,  “  by  occasioning" an 

'extraordinary  exportation,  it  necessarily  keeps  up  the  price  of  corn 
in  the  home  market  above  what  it  would  naturally  fall  to.  In 
years  of  scarcity,  though  the  bounty  is  frequently  suspended,  yet 
the  great  exportation  which  it  occasions  in  years  of  plenty  must 
frequently  hinder,  more  or  less,  the  plenty  of  one  year  from  relieving 
the  scarcity  of  another.  Both  in  the  years  of  plenty  and  in  years 
of  scarcity,  therefore,  the  bounty  necessarily  tends  to  raise  the 
money  price  of  corn  somewhat  higher  than  it  otherwise  would  be 
in  the  home  market.”  * 

Adam  Smith  appears  to  have  been  fully  aware  that  the  correct¬ 
ness  of  his  argument  entirely  depended  on  the  fact,  whether  the 
increase  u  of  the  money  price  of  corn,  by  rendering  that  commodity 

*  In  another  place  he  says,  that  “  whatever  extension  of  the  foreign  market  can  be 
occasioned  by  the  bounty  must,  in  every  particular  year,  be  altogether  at  the  expense 
of  the  home  market,  as  every  bushel  of  corn  which  is  exported  by  means  of  the 
bounty,  and  which  would  not  have  been  exported  without  the  bounty,  would  have 
remained  in  the  home  market  to  increase  the  consumption  and  to  lower  the  price  of 
that  commodity.  The  corn  bounty,  it  is  to  be  observed,  as  well  as  every  other  bounty 
upon  exportation,  imposes  two  different  taxes  upon  the  people  : — first,  the  tax  which 
they  are  obliged  to  contribute  in  order  to  pay  the  bounty  ;  and,  secondly,  the  tax 
which  arises  from  the  advanced  price  of  the  commodity  in  the  home  market,  and 
which,  as  the  whole  body  of  the  people  are  purchasers  of  corn,  must,  in  this  particular 
commodity,  be  paid  by  the  whole  body  of  the  people.  In  this  particular  commodity, 
therefore,  this  second  tax  is  by  much  the  heaviest  of  the  two.”  “  For  every  five 
shillings,  therefore,  which  they  contribute  to  the  payment  of  the  first  tax,  they  must 
contribute  six  pounds  four  shillings  to  the  payment  of  the  second.”  “  The  extra¬ 
ordinary  exportation  of  corn,  therefore,  occasioned  by  the  bounty,  not  only  in  every 
particular  year  diminishes  the  home,  just  as  much  as  it  extends  the  foreign  market 
and  consumption  ;  but,  by  restraining  the  population  and  industry  of  the  country,  its 
final  tendency  is  to  stunt  and  restrain  the  gradual  extension  of  the  home  market,  and 
thereby,  in  the  long  run,  rather  to  diminish  than  to  augment  the  whole  market  and 
tomumption  of  corn.” 


184 


BOUNTIES  ON  EXPORTATION,  AND 


more  profitable  to  the  farmer,  would  not  necessarily  encourage  its 
production.” 

“  T  answer,”  lie  says,  “  that  this  might  he  the  case  if  the  effect 
of  the  bounty  was  to  raise  the  real  price  of  corn,  or  to  enable  the 
farmer,  with  an  equal  quantity  of  it,  to  maintain  a  greater  number 
of  labourers  in  the  same  manner,  whether  liberal,  moderate,  or 
scanty,  as  other  labourers  are  commonly  maintained  in  his  neigh¬ 
bourhood.” 

If  nothing  were  consumed  by  the  labourer  but  corn,  and  if  the 
portion  which  he  received  was  the  very  lowest  which  his  sustenance 
required,  there  might  be  some  ground  for  supposing  that  the  quantity 
paid  to  the  labourer  could,  under  no  circumstances,  be  reduced, — 
but  the  money  wages  of  labour  sometimes  do  not  rise  at  all,  and 
never  rise  in  proportion  to  the  rise  in  the  money  price  of  corn, 
because  corn,  though  an  important  part,  is  only  a  part  of  the 
consumption  of  the  labourer.  If  half  his  wages  were  expended  on 
corn,  and  the  other  half  on  soap,  candles,  fuel,  tea,  sugar,  clothing, 
&c.,  commodities  on  which  no  rise  is  supposed  to  take  place,  it  is 
evident  that  he  would  be  quite  as  well  paid  with  a  bushel  and  a 
half  of  wheat  when  it  was  16s.  a  bushel,  as  he  was  with  two  bushels 
when  the  price  was  8s.  per  bushel;  or  with  24s.  in  money  as  he 
was  before  with  16s.  Ills  wages  would  rise  only  50  per  cent,  though 
corn  rose  100  per  cent. ;  and,  consequently,  there  would  be  suffi¬ 
cient  motive  to  divert  more  capital  to  the  land  if  profits  on  other 
trades  continued  the  same  as  before.  But  such  a  rise  of  wages 
would  also  induce  manufacturers  to  withdraw  their  capitals  from 
manufactures  to  employ  them  on  the  land ;  for,  whilst  the  farmer 
increased  the  price  of  his  commodity  100  per  cent,  and  his  wages 
only  50  per  cent.,  the  manufacturer  would  be  obliged  also  to  raise 
wages  50  per  cent.,  whilst  he  had  no  compensation  whatever  in  the 
rise  of  his  manufactured  commodity  for  this  increased  charge  of 
production ;  capital  would  consequently  flow  from  manufactures  to 
agriculture,  till  the  supply  would  again  lower  the  price  of  corn  to 
8s.  per  bushel,  and  wages  to  16s.  per  week;  when  the  manufacturer 
would  obtain  the  same  profits  as  the  farmer,  and  the  tide  of  capital 
would  cease  to  set  in  either  direction.  This  is,  in  fact,  the  mode  in 
which  the  cultivation  of  corn  is  always  extended,  and  the  increased 
wants  of  the  market  supplied.  The  funds  for  the  maintenance  of 
labour  increase,  and  wages  are  raised.  The  comfortable  situation 
of  the  labourer  induces  him  to  marry- — population  increases,  and 
the  demand  for  corn  raises  its  price  relatively  to  other  things — 
more  capital  is  profitably  employed  on  agriculture,  and  continues 
to  flow  towards  it,  till  the  supply  is  equal  to  the  demand,  when  the 
price  again  falls,  and  agricultural  and  manufacturing  profits  are 
again  brought  to  a  level. 

But  whether  wages  were  stationary  after  the  rise  in  the  price  of 
corn,  or  advanced  moderately  or  enormously,  is  of  no  importance  to 
this  question,  for  wages  arc  paid  by  the  manufacturer  as  11011  as  by 


PROHIBITIONS  OF  IMPORTATION. 


185 


the  farmer,  and,  therefore,  in  this  respect  they  must  be  equally 
affected  by  a  rise  in  the  price  of  corn.  But  they  are  unequally 
affected  in  their  profits,  inasmuch  as  the  farmer  sells  his  commodity 
at  an  advanced  price,  while  the  manufacturer  sells  his  for  the  same 
price  as  before.  It  is,  however,  the  inequality  of  profit  which  is 
always  the  inducement  to  remove  capital  from  one  employment  to 
another :  and,  therefore,  more  corn  would  be  produced,  and  fewer 
commodities  manufactured.  Manufactures  would  not  rise,  because 
fewer  -would  be  manufactured,  for  a  supply  of  them  would  be 
obtained  in  exchange  for  the  exported  corn. 

A  bounty,  if  it  raises  the  price  of  corn,  either  raises  it  in  compa¬ 
rison  with  the  price  of  other  commodities  or  it  does  not.  If  the 
affirmative  be  true,  it  is  impossible  to  deny  the  greater  profits  of  the 
farmer,  and  the  temptation  to  the  removal  of  capital  till  its  price  is 
again  lowered  by  an  abundant  supply.  If  it  does  not  raise  it  in 
comparison  with  other  commodities,  where  is  the  injury  to  the  home 
consumer  beyond  the  inconvenience  of  paying  the  tax  ?  If  the 
manufacturer  pays  a  greater  price  for  his  corn,  he  is  compensated 
by  the  greater  price  at  which  he  sells  his  commodity,  w  ith  which 
his  corn  is  ultimately  purchased. 

The  error  of  Adam  Smith  proceeds  precisely  from  the  same 
source  as  that  of  the  writer  in  the  Edinburgh  Review ;  for  they  both' 
think  “  that  the  money  price  of  corn  regulates  that  of  all  other 
home-made  commodities.”  *  “It  regulates,”  says  Adam  Smith, 
“  the  money  price  of  labour,  which  must  always  be  such  as  to  enable 
the  labourer  to  purchase  a  quantity  of  corn  sufficient  to  maintain 
him  and  his  family,  either  in  the  liberal,  moderate,  or  scanty 
manner,  in  which  the  advancing,  stationary,  or  declining  circum¬ 
stances  of  the  society  oblige  his  employers  to  maintain  him.  By 
regulating  the  money  price  of  all  the  other  parts  of  the  rude  pro¬ 
duce  of  land,  it  regulates  that  of  the  materials  of  almost  all  manu¬ 
factures.  By  regulating  the  money  price  of  labour,  it  regulates 
that  of  manufacturing  art  and  industry ;  and  by  regulating  both, 
it  regulates  that  of  the  complete  manufacture.  The  money  price  of 
labour ,  and  of  every  thing  that  is  the  produce  either  of  land  or  labour , 
must  necessarily  rise  or  fall  in  proportion  to  the  money  price  of  com.” 

This  opinion  of  Adam  Smith,  1  have  before  attempted  to  refute. 
In  considering  a  rise  in  the  price  of  commodities  as  a  necessary 
consequence  of  a  rise  in  the  price  of  corn,  he  reasons  as  though 
there  were  no  other  fund  from  which  the  increased  charge  could  be 
paid.  He  has  wholly  neglected  the  consideration  of  profits,  the 
diminution  of  which  forms  that  fund,  without  raising  the  price  of 
commodities.  If  this  opinion  of  Dr  Smith  were  well  founded, 
profits  could  never  really  fall,  whatever  accumulation  of  capital 
there  might  be.  If j  when  wages  rose,  the  farmer  could  raise  the 
price  of  his  corn,  and  the  clothier,  the  hatter,  the  shoemaker,  and 


The  same  opinion  is  held  by  M.  Say. — Vol.  ii.  p.  335. 


186 


BOUNTIES  ON  EXPORTATION,  AND 


every  other  manufacturer,  could  also  raise  the  price  of  their  goods 
in  proportion  to  the  advance,  although  estimated  in  money  they 
might  be  all  raised,  they  would  continue  to  bear  the  same  value 
relatively  to  each  other.  Each  of  these  trades  could  command  the 
same  quantity  as  before  of  the  goods  of  the  others,  which,  since  it 
is  goods,  and  not  money,  which  constitute  wealth,  is  the  only  cir¬ 
cumstance  that  could  be  of  importance  to  them ;  and  the  whole  rise 
in  the  price  of  raw  produce  and  of  goods,  would  be  injurious  to  no 
other  persons  but  to  those  whose  property  consisted  of  gold  and 
silver,  or  whose  annual  income  was  paid  in  a  contributed  quantity 
of  those  metals,  whether  in  the  form  of  bullion  or  of  money.  Sup¬ 
pose  the  use  of  money  to  be  wholly  laid  aside,  and  all  trade  to  be 
carried  on  by  barter.  Under  such  circumstances,  could  corn  rise 
in  exchangeable  value  with  other  things  ?  If  it  could,  then  it  is 
not  true  that  the  value  of  corn  regulates  the  value  of  all  other 
commodities ;  for  to  do  that,  it  should  not  vary  in  relative  value  to 
them.  If  it  could  not,  then  it  must  be  maintained,  that  whether 
corn  be  obtained  on  rich  or  on  poor  land,  with  much  labour,  or 
with  little,  with  the  aid  of  machinery,  or  without,  it  would  always 
exchange  for  an  equal  quantity  of  all  other  commodities. 

I  cannot,  however,  but  remark  that,  though  Adam  Smith’s  general 
doctrines  correspond  with  this  which  I  have  just  quoted,  yet  in  one 
part  of  his  work  he  appears  to  have  given  a  correct  account  of  tire 
nature  of  value.  “  The  proportion  between  the  value  of  gold  and 
silver,  and  that  of  goods  of  any  other  kind,  depends  in  all  cases,” 
he  says,  11  upon  the  proportion  between  the  quantity  of  labour  icliich  is 
necessary  in  order  to  bring  a  certain  quantity  of  gold  and  silver  to 
market ,  and  that  which  is  necessary  to  bring  thither  a  certain  quantity 
of  any  other  sort  of  goods.”  Does  he  not  here  fully  acknowledge, 
that  if  any  increase  takes  place  in  the  quantity  of  labour  required 
to  brino-  one  sort  of  goods  to  market,  whilst  no  such  increase  takes 
place  in  bringing  another  sort  thither,  the  first  sort  will  rise  in 
relative  value  ?  If  no  more  labour  than  before  be  required  to  bring 
either  cloth  or  gold  to  market,  they  will  not  vary  in  relative  value, 
but  if  more  labour  be  required  to  bring  corn  and  shoes  to  market, 
will  not  corn  and  shoes  rise  in  value  relatively  to  cloth,  and  money 
made  of  gold  ? 

Adam  Smith  again  considers  that  the  effect  of  the  bounty  is  to 
cause  a  partial  degradation  in  the  value  of  money.  “  That  degra¬ 
dation,”  says  he,  “  in  the  value  of  silver,  which  is  the  effect  of  the 
fertility  of  the  mines,  and  which  operates  equally,  or  very  nearly 
equally,  through  the  greater  part  of  the  commercial  world,  is  a 
matter  of  very  little  consequence  to  any  particular  country.  The 
consequent  rise  of  all  money  prices,  though  it  does  not  make  those 
who  receive  them  really  richer,  does  not  make  them  really  poorer. 
A  service  of  plate  becomes  really  cheaper,  and  everything  else  re¬ 
mains  precisely  of  the  same  real  value  as  before.”  This  observation 
is  most  correct. 


PROHIBITIONS  OF  IMPORTATION. 


187 


u  But,  that  degradation  in  the  value  of  silver,  which,  being  the 
effect  either  of  the  peculiar  situation,  or  of  the  political  institutions 
of  a  particular  country,  takes  place  only  in  that  country,  is  a  matter 
of  very  great  consequence,  which,  far  from  tending  to  make  any 
body  really  richer,  tends  to  make  every  body  really  poorer.  The 
rise  in  the  money  price  of  all  commodities,  which  is  in  this  case 
peculiar  to  that  country,  tends  to  discourage  more  or  less  every 
sort  of  industry  which  is  carried  on  within  it,  and  to  enable  foreign 
nations,  by  furnishing  almost  all  sorts  of  goods  for  a  smaller  quantity 
of  silver  than  its  own  workmen  can  afford  to  do,  to  undersell  them, 
not  only  in  the  foreign,  but  even  in  the  home  market.” 

I  have  elsewhere  attempted  to  show  that  a  partial  degradation 
in  the  value  of  money,  which  shall  affect  both  agricultural  produce 
and  manufactured  commodities,  cannot  possibly  be  permanent. 
To  say  that  money  is  partially  degraded,  in  this  sense,  is  to  say 
that  all  commodities  are  at  a  high  price;  but  while  gold  and  silver 
are  at  liberty  to  make  purchases  in  the  cheapest  market,  they  will 
be  exported  for  the  cheaper  goods  of  other  countries,  and  the 
reduction  of  their  quantity  will  increase  their  value  at  home  ;  com¬ 
modities  will  regain  their  usual  level,  and  those  fitted  for  foreign 
markets  will  be  exported  as  before. 

A  bounty,  therefore,  cannot,  I  think,  be  objected  to  on  this 
ground. 

If,  then,  a  bounty  raises  the  price  of  corn  in  comparison  with  all 
other  things,  the  farmer  will  be  benefited,  and  more  land  will  be 
cultivated  ;  but  if  the  bounty  do  not  raise  the  value  of  corn  relatively 
to  other  things,  then  no  other  inconvenience  will  attend  it  than  that 
of  paying  the  bounty  ;  one  which  I  neither  wish  to  conceal  nor 
underrate. 

Dr  Smith  states,  that  “  by  establishing-high  duties  on  the_hn- 
portatjon,  and  J-aHnrties—on-lli e  exportation  of  earn,  the  country 
gc 1 1  tlemen  jyieiued-to  have  imitated  the  conduct  of  the  mauufac- 
turers/^—Bv  the  same  means,  both  had  endeavoured  to  raise  the 
value  of  their  commodities.  “  They  did  not",  perhaps,  attend  to  the 
great  and  essential  difference  which  nature  has  established  between 
corn^awTalmos-t  c-v^yv-^ithor-sort  of- -goods.  When  by  either  of  the 
above  means,  you  enable  our  manufacturers  to  sell  their  goods  for 
somewhat  a  better  price  than  they  otherwise  could  get  for  them,  you 
raise  not  only  the  nominal,  but  the  real  price  of  those  goods.  You 
increase  not  only  the  nominal,  but  the  real  profit,  the  real  wealth  and 
revenue  of  those  manufacturers — you  really  encourage  those  manu¬ 
factures.  Butjyliern-by-tlic  likcTnstitutmns;jyoujniseJdie-Uominal 
or  money  priee  mfbeom^yotralo-mat-Taise  itsxctd'vulue,  you  do- not 
'increase  the  real  wealth  of  our  farmers  or  country  gentlemen,  you  do 
not  encourage  the  growth  of  corn.  The  nature  of  things  has  stamped 
upon  corn  aTeal  value,  which  cannot  be  altered  by  merely  altering  its 
money  price.  Through  the  world  in  general,  that  value  is  equal  to 
the  quantity  of  labour  which  it  can  maintain.” 


188 


BOUNTIES  ON  EXPORTATION,  AND 


I  have  already  attempted  to  show,  that  the  market  price  of  corn 
would,  under  an  increased  demand  from  the  effects  of  a  bounty, 
exceed  its  natural  price,  till  the  requisite  additional  supply  was 
obtained,  and  that  then  it  would  again  fall  to  its  natural  price.  But 
the  natural  price  of  corn  is  not  so  fixed  as  the  natural  price  of  com¬ 
modities  :  because,  with  any  great  additional  demand  for  corn,  land 
of  a  worse  quality  must  be  takenJnjto  cultivation,  on  which  more 
labour  will  be  required  to  produce  a  given  quantity,  and  the  natural 
price  of  corn  will  be  raised.  JQv  a  contipnitLlKymty,  therefore,  .on 
tln<-exportatioii -of  corn.  t CjQ2]TTrTHlmK‘ y  to  A  „ 

pOrrqanent  rise  in  the  price  of  cerjpf^amPfhis^ jis  I  haver"stlown  ~ 
elsenTtoreyi-Jie\'eidailsJ:Qji'fi-ise'rent.  Country  gentlemen,  then, 'have 
not  only  a  temporary  But  a  permanent  interest  in  prohibitions  of  the 
importation  of  corn,  and  in  bounties  on  its  exportation  ;  but  manu¬ 
facturers  have  no  permanent  interest  in  establishing  high  duties  on 
the  importation,  and  bounties  on  the  exportation  of  commodities; 
their  interest  is  wholly  temporary. 

A  bounty  on  the  exportation  of  manufactures  will,  undoubtedly, 
as  Dr  Smith  contends,  raise  fora  time  the  market  price  of  manufac¬ 
tures,  but  it  will  not.  raise  their  natural  price.  The  labour  of  200 
men  will  produce  double  the  quantity  of  these  goods  that  100  could 
produce  before ;  and,  consequently,  when  the  requisite  quantity 
of  capital  was  employed  in  supplying  the  requisite  quantity  of 
manufactures,  they  would  again  fall  to  their  natural  price,  and  all 
advantage  from  a  high  market  price  would  cease.  It  is,  then,  only 
during  the  interval  after  the  rise  in  the  market  price  of  commodities, 
and  till  the  additional  supply  is  obtained,  that  the  manufacturers 
will  enjoy  high  profits  ;  for  as  soon  as  prices  had  subsided,  their 
profits  would  sink  to  the  general  level. 

Instead  of  agreeing,  therefore,  with  Adam  Smith,  that  the  country 
gentlemen  had  not  so  great  an  interest  in  prohibiting  the  importa¬ 
tion  of  corn,  as  the  manufacturer  had  in  prohibiting  the  importation 
of  manufactured  goods,  I  contend,  that  they  have  a  much  superior 
interest ;  for  their  advantage  is  permanent,  while  that  of  the  manu¬ 
facturer  is  only  temporary.  Dr  Smith  observes,  that  nature  has 
established  a  great  and  essential  difference  between  corn  and  other 
goods,  but  the  proper  inference  from  that  circumstance  is  directly 
the  reverse  of  that  which  he  draws  from  it ;  for  it  is  on  account  of 
this  difference  that  rent  is  created,  and  that  country  gentlemen  have 
an  interest  in  the  rise  of  the  natural  price  of  corn.  Instead  of  com¬ 
paring  the  interest  of  the  manufacturer  with  the  interest  of  the 
country  gentleman,  Dr  Smith  should  have  compared  it  with  the 
interest  of  the  farmer,  which  is  very  distinct  from  that  of  his  land¬ 
lord.  Manufacturers  have  no  interest  in  the  rise  of  the  natural 
price  of  their  commodities,  nor  have  farmers  any  interest  in  the  rise 
of  the  natural  price  of  corn,  or  other  raw  produce,  though  both  these 


See  Chapter  on  Rent. 


PROHIBITIONS  OF  IMPORTATION. 


189 


classes  are  benefited  while  the  market  price  of  their  productions  ex¬ 
ceeds  their  natural  price.  On  the  contrary,  landlords  have  a  most 
decided  interest  in  the  rise  of  the  natural  price  of  corn  ;  for  the  rise 
of  rent  is  the  inevitable  consequence  of  the  difficulty  of  producing 
raw  produce,  without  which  its  natural  price  could  not  rise.  Now, 
as  bounties  on  exportation  and  prohibitions  of  the  importation  of 
corn  increase  the  demand,  and  drive  us  to  the  cultivation  of  poorer 
lands,  they  necessarily  occasion  an  increased  difficulty  of  production. 

The  sole  effect  of  high  duties  on  the  importation,  either  of  manu¬ 
factures  or  of  corn,  or  of  a  bounty  on  their  exportation,  is  to  divert 
a  portion  of  capital  to  an  employment,  which  it  would  not  naturally 
seek.  It  causes  a  pernicious  distribution  of  the  general  funds  of 
the  society — it  bribes  a  manufacturer  to  commence  or  continue  in  a 
comparatively  less  profitable  employment.  It  is  the  worst  species 
of  taxation,  for  it  does  not  give  to  the  foreign  country  all  that  it 
takes  away  from  the  home  country,  the  balance  of  loss  being  made 
up  by  the  less  advantageous  distribution  of  the  general  capita.. 
Thus,  if  the  price  of  corn  is  in  England  4/.,  and  in  France  3/.  15s., 
a  bounty  of  10s.  will  ultimately  reduce  it  to  3 1.  10s.  in  France,  and 
maintain  it  at  the  same  price  of  4/.  in  England.  For  every  quarter 
exported,  England  pays  a  tax  of  10s.  For  every  quarter  imported 
into  France,  France  gains  only  5s.,  so  that  the  value  of  5s.  per 
quarter  is  absolutely  lost  to  the  world  by  such  a  distribution  of  its 
funds,  as  to  cause  diminished  production,  probably  not  of  corn,  but 
of  some  other  object  of  necessity  or  enjoyment. 

Mr  Buchanan  appears  to  have  seen  the  fallacy  of  Dr  Smith’s 
arguments  respecting  bounties,  and  on  the  last  passage  which  I 
have  quoted,  very  judiciously  remarks  :  “  In  asserting  that  nature 
has  stamped  a  real  value  on  corn,  which  cannot  be  altered  by  merely 
altering  its  money  price,  Dr  Smith  confounds  its  value  in  use  with 
its  value  in  exchange.  A  bushel  of  wheat  will  not  feed  more  people 
during  scarcity  than  during  plenty ;  but  a  bushel  of  wheat  will 
exchange  for  a  greater  quantity  of  luxuries  and  conveniences  when 
it  is  scarce  than  when  it  is  abundant ;  and  the  landed  proprietors, 
who  have  a  surplus  of  food  to  dispose  of,  will  therefore,  in  times  of 
scarcity,  be  richer  men ;  they  will  exchange  their  surplus  for  a 
greater  value  of  other  enjoyments  than  when  corn  is  in  greater 
plenty.  It  is  vain  to  argue,  therefore,  that  if  the  bounty  occasions  a 
forced  exportation  of  corn,  it  will  not  also  occasion  a  real  rise  of  price.’ 
The  whole  of  Mr  Buchanan’s  arguments  on  this  part  of  the  subject 
of  bounties,  appear  to  me  to  be  perfectly  clear  and  satisfactory. 

Mr  Buchanan,  howTcver,  has  not,  I  think,  any  more  than  Di 
Smith,  or  the  writer  in  the  Edinburgh  Review ,  correct  opinions  as 
to  the  influence  of  a  rise  in  the  price  of  labour  on  manufactured 
commodities.  From  his  peculiar  views,  which  I  have  elsewhere 
noticed,  he  thinks  that  the  price  of  labour  has  no  connexion  witn 
the  price  of  corn,  and,  therefore,  that  the  real  value  of  corn  might 
and  would  rise  without  affecting  the  price  of  labour ;  but  if  labour 


BOUNTIES  ON  EXPORTATION,  AND 


190 

were  affected,  lie  would  maintain  with  Adam  Smith  and  the  writer 
in  the  Edinburgh  Review,  that  the  price  of  manufactured  commo¬ 
dities  would  also  rise  ;  and  then  I  do  not  see  how  he  would  dis¬ 
tinguish  such  arise  of  corn  from  a  fall  in  the  value  of  money,  or  how 
he  could  come  to  any  other  conclusion  than  that  of  Dr  Smith.  In 
a  note  to  page  276,  vol.  i.  of  the  Wealth  of  Nations,  Mr  Buchanan 
observes-,  “  but  the  price  of  corn  does  not  regulate  the  money  price 
of  all  the  other  parts  of  the  rude  produce  of  land.  It  regulates  the 
price  neither  of  metals,  nor  of  various  other  useful  substances,  such 
as  coals,  wood,  stones,  Ac. ;  and  as  it  does  not  regulate  the  price  of 
labour,  it  does  not  regulate  the  price  of  manufactures ;  so  that  the 
bounty,  in  so  far  as  it  raises  the  price  of  corn,  is  undoubtedly  a  real 
benefit  to  the  farmer.  It  is  not  on  this  ground,  therefore,  that  its 
policy  must  be  argued.  Its  encouragement  to  agriculture,  by  raising 
the  price  of  corn,  must  be  admitted;  and  the  question  then  comes 
to  be,  whether  agriculture  ought  to  be  thus  encouraged?” — It  is  then, 
according  to  Mr  Buchanan,  a  real  benefit  to  the  farmer,  because  it 
does  not  raise  the  price  of  labour  ;  but  if  it  did,  it  would  raise  the 
price  of  all  things  in  proportion,  and  then  it  would  afford  no  parti¬ 
cular  encouragement  to  agriculture. 

It  must,  however,  be  conceded  that  the  tendency  of  a  bounty  on 
the  exportation  of  any  commodity  is  to  lower  in  a  small  degree  the 
value  of  money.  Whatever  facilitates  exportation,  tends  to  accu¬ 
mulate  money  in  a  country  ;  and,  on  the  contrary,  whatever  impedes 
exportation,  tends  to  diminish  it.  The  general  effect  of  taxation, 
by  raising  the  prices  of  the  commodities  taxed,  tends  to  diminish 
exportation,  and,  therefore,  to  check  the  influx  of  money  ;  and,  on 
the  same  principle,  a  bounty  encourages  the  influx  of  money.  This 
is  more  fully  explained  in  the  general  observations  on  taxation. 

The  injurious  effects  of  the  mercantile  system  have  been  fully 
exposed  by  Dr  Smith  ;  the  whole  aim  of  that  system  was  to  raise 
the  price  of  commodities  in  the  home  market,  by  prohibiting  foreign 
competition  ;  but  this  system  was  no  more  injurious  to  the  agricul¬ 
tural  classes  than  to  any  other  part  of  the  community.  By  forcing 
|  capital  into  channels  where  it  would  not  otherwise  flow,  it  diminished 
the  whole  amount  of  commodities  produced.  The  price,  though 
permanently  higher,  was  not  sustained  by  scarcity,  but  by  difficulty 
of  production  ;  and  therefore,  though  the  sellers  of  such  commodi¬ 
ties  sold  them  for  a  higher  price,  they  did  not  sell  them,  after  the 
requisite  quantity  of  capital  was  employed  in  producing  them,  at 
higher  profits.* 


*  M.  Say  supposes  the  advantage  of  the  manufacturers  at  home  to  be  more  than 
temporary.  “  A  government  which  absolutely  prohibits  the  importation  of  certain 
foreign  goods,  establishes  a  monopoly  in  favour  of  those  who  produce  such  commodi¬ 
ties  at  home,  against  those  who  consume  them ;  in  other  words,  those  at  home  who 
produce  them  having  the  exclusive  privilege  of  selling  them,  may  elevate  their  price 
above  the  natural  price ;  and  the  consumers  at  home,  not  being  able  to  obtain  them 
•Jsewhere,  are  obliged  to  purchase  them  at  a  higher  price.” — Vol.  i.  p.  201. 

But  how  can  they  permanently  support  the  market  price  of  their  goods  above  thr 


PROHIBITIONS  OF  IMPORTATION, 


191 


Tlic  manufacturers  themselves,  as  consumers,  had  to  pay  an 
additional  price  for  such  commodities,  and,  therefore,  it  cannot  be 
correctly  said,  that  “  the  enhancement  of  price  occasioned  by  both 
(corporation  laws  and  high  duties  on  the  importations  of  foreign 
commodities)  is  everywhere  finally  paid  by  the  landlords,  farmers, 
and  labourers  of  the  country.” 

It  is  the  more  necessary  to  make  this  remark,  as  in  the  present 
day  the  authority  of  Adam  Smith  is  quoted  by  country  gentlemen 
for  imposing  similar  high  duties  on  the  importation  of  foreign  corn. 
Because  the  cost  of  production,  and,  therefore,  the  prices  of  various 
manufactured  commodities,  are  raised  to  the  consumer  by  one  error 
in  legislation,  the  country  has  been  called  upon,  on  the  plea  of' justice, 
quietly  to  submit  to  fresh  exactions.  Because  we  all  pay  an  addi¬ 
tional  price  for  our  linen,  muslin,  and  cottons,  it  is  thought  just 
that  we  should  pay  also  an  additional  price  for  our  corn.  Because, 
in.  the  general  distribution  of  the  labour  of  the  world,  we  have 
prevented  the  greatest  amount  of  productions  from  being  obtained 
by  our  portion  of  that  labour  in  manufactured  commodities,  we 
should  further  punish  ourselves  by  diminishing  the  productive  powers 
of  the  general  labour  in  the  supply  of  raw  produce.  It  would  be 
much  wiser  to  acknowledge  the  errors  which  a  mistaken  policy  has 
induced  us  to  adopt,  and  immediately  to  commence  a  gradual 
recurrence  to  the  sound  principles  of  a  universally  free  trade." 

“  I  have  already  had  occasion  to  remark,”  observes  M.  Say,  “  in 
speaking  of  what  is  improperly  called  the  balance  of  trade,  that  it 
it  suits  a  merchant  better  to  export  the  precious  metals  to  a  foreign 
country  than  any  other  goods,  it  is  also  the  interest  of  the  State 
that  he  should  export  them,  because  the  State  only  gains  or  loses 
through  the  channel  of  its  citizens ;  and  in  what  concerns  foreign 
trade,  that  which  best  suits  the  individual  best  suits  also  the  State; 
therefore,  by  opposing  obstacles  to  the  exportation  which  individuals 
would  be  inclined  to  make  of  the  precious  metals,  nothing  more  is 
done  than  to  force  them  to  substitute  some  other  commodity  less 
profitable  to  themselves  and  to  the  State.  It  must,  however,  be 
remarked,  that  I  say  only  in  what  concerns  foreign  trade ;  because 
the  profits  which  merchants  make  by  their  dealings  with  their 


natural  price,  when  every  one  of  their  fellow  citizens  is  free  to  enter  into  the  trade  ? 
They  are  guaranteed  against  foreign,  but  not  against  home  competition.  The  real 
evil  arising  to  the  country  from  such  monopolies,  if  they  can  he  called  by  that  name, 
lies,  not  in  raising  the  market  price  of  such  goods,  but  in  raising  their  real  and  natural 
price.  By  increasing  the  cost  of  production,  a  portion  of  the  labour  of  the  country  is 
less  productively  employed. 

*  “  A  freedom  of  trade  is  alone  wanted  to  guarantee  a  country  like  Britain, 
abounding  in  all  the  varied  products  of  industry,  in  merchandise  suited  to  the  wants 
of  every  society,  from  the  possibility  of  a  scarcity.  The  nations  of  the  earth  are  not 
condemned  to  throw  the  dice  to  determine  which  of  them  shall  submit  to  famine. 
There  is  always  abundance  of  food  in  the  world.  To  enjoy  a  constant  plenty  we  have 
only  to  lay  aside  our  prohibitions  and  restrictions,  and  cease  to  counteract  the  bene¬ 
volent  wisdom  of  Providence.”  —  Article  “Corn  Laws  and  Trade,”  Supplement  to 
Encyclopedia  Britannica. 


192 


BOUNTIES  ON  EXPORTATION. 


countrymen,  ns  well  as  those  which  are  made  in  the  exclusive 
commerce  with  colonies,  are  not  entirely  gains  for  the  State.  In 
the  trade  between  individuals  of  the  same  country,  there  is  no  other 
gain  but  the  value  of  a  utility  produced  ;  que  la  valeur  d'une  utilite 
produite Vol.  i.  p.  401.  I  cannot  see  the  distinction  here  made 
between  the  profits  of  the  home  and  foreign  trade.  The  object  of 
all  trade  is  to  increase  productions.  If,  for  the  purchase  of  a  pipe 
of  wine,  I  had  it  in  my  power  to  export  bullion  which  was  bought 
with  the  value  of  the  produce  of  100  days’  labour,  but  Government, 
by  prohibiting  the  exportation  of  bullion,  should  oblige  me  to  purchase 
my  wine  with  a  commodity  bought  with  the  value  of  the  produce  of 
105  days’  labour,  the  produce  of  five  days’  labour  is  lost  to  me,  and, 
through  me,  to  the  State.  But  if  these  transactions  took  place 
between  individuals  in  different  provinces  of  the  same  country,  the 
same  advantage  would  accrue  both  to  the  individual,  and,  through 
him,  to  the  country;  if  he  were  unfettered  1  in  his  choice  of  the 
commodities  with  'which  he  made  his  purchases  ;  and  the  same 
disadvantage  if  he  were  obliged  by  Government  to  purchase  with 
the  least  beneficial  commodity.  If  a  manufacturer  could  work  up 
with  the  same  capital  more  iron  where  coals  are  plentiful  than  he 
could  where  coals  are  scarce,  the  country  would  be  benefited  by 
the  difference.  But  if  coals  were  nowhere  plentiful,  and  he  imported 
iron,  and  could  get  this  additional  quantity  by  the  manufacture  of 
a  commodity  with  the  same  capital  and  labour,  he  would,  in  like 
manner,  benefit  his  country  by  the  additional  quantity  of  iron.  In 
the  sixth  chapter  of  this  work,  I  have  endeavoured  to  show  that  all 
trade,  whether  foreign  or  domestic,  is  beneficial,  by  increasing  the 
quantity,  and  not  by  increasing  the  value  of  productions.  We  shall 
have  no  greater  value,  whether  we  carry  on  the  most  beneficial 
home  and  foreign  trade,  or,  in  consequence  of  ' being  fettered  by 
prohibitory  laws,  we  are  obliged  to  content  ourselves  with  the  least 
advantageous.  The  rate  of  profits  and  the  value  produced  will  be 
the  same.  The  advantage  always  resolves  itself  into  that  which 
M.  Say  appears  to  confine  to  the  home  trade  ;  in  both  cases  there 
is  no  other  gain  but  that  of  the  value  of  a  utilite  produite. 

*  Are  not  the  following  passages  contradictory  to  the  one  above  quoted  ?  “  Besides, 
that  home  trade,  though  less  noticed  (because  it  is  in  a  variety  of  hands),  is  the  most 
considerable,  it  is  also  the  most  profitable.  The  commodities  exchanged  in  that  trade 
are  necessarily  the  productions  of  the  same  country.” — Vol.  i.  p.  84. 

“  The  English  Government  has  not  observed,  that  the  most  profitable  sales  are  those 
which  a  country  makes  to  itself,  because  they  cannot  take  place  without  two  values 
being  produced  by  the  nation ;  the  value  which  is  sold,  and  the  value  with  which  the 
purchase  is  made.” — Vol.  i.  p.  221. 

I  shall,  in  the  26th  chapter,  examine  the  soundness  of  this  opinion. 


[  193  ] 


CHAPTER  XXIII. 


ON  BOUNTIES  ON  PRODUCTIONS. 

It  may  not  be  uninstructive  to  consider  the  effects  of  a  bounty  on 
the  production  of  raw  produce  and  other  commodities,  with  a  view 
to  observe  the  application  of  the  principles  which  I  have  been 
endeavouring  to  establish  with  regard  to  the  profits  of  stock,  the 
division  of  the  annual  produce  of  the  land  and  labour,  and  the  re 
lative  prices  of  manufactures  and  raw  produce.  In  the  first-place,  let  \ 
us  suppose  that  a  tax  was  imposed  on  all  commodities  for  the  purpose  ! 
of  raising  a  fund  to  be  employed  by  Government  in  giving  a  bounty 
on  the  'production  of  corn.  As  no  part  of  such  a  tax  would  be 
expended  by  Government,  and  as  all  that  was  received  from  one 
class  of  the  people  would  be  returned  to  another,  the  nation  collec¬ 
tively  would  be  neither  richer  nor  poorer  from  such  a  tax  and 
county.  It  would  be  readily  allowed,  that  the  tax  on  commodities 
by  which  the  fund  was  created  would  raise  the  price  of  the  com¬ 
modities  taxed  ;  all  the  consumers  of  those  commodities,  therefore, 
would  contribute  towards  that  fund  ;  in  other  words,  their  natural 
or  necessary  price  being  raised,  so  would,  too,  their  market  price. 
But  for  the  same  reason  that  the  natural  price  of  those  commodities 
would  be  raised,  the  natural  price  of  corn  would  be  lowered  ;  before 
the  bounty  was  paid  on  production,  the  farmers  obtained  as  great  a 
price  for  their  corn  as  was  necessary  to  repay  them  their  rent  and 
their  expenses,  and  afford  them  the  general  rate  of  profits  ;  after 
the  bounty,  they  would  receive  more  than  that  rate,  unless  the  price 
of  corn  fell  by  a  sum  at  least  equal  to  the  bounty.  The  effect,  then, 
of  the  tax  and  bounty  would  be  to  raise  the  price  of  commodities 
in  a  degree  equal  to  the  tax  levied  on  them,  and  to  lower  the  price 
of  corn  by  a  sum  equal  to  the  bounty  paid.  It  will  be  observed, 
too,  that  no  permanent  alteration  could  be  made  in  the  distribution 
of  capital  between  agriculture  and  manufactures,  because,  as  there 
would  be  no  alteration  either  in  the  amount  of  capital  or  population, 
there  would  be  precisely  the  same  demand  for  bread  and  manufac¬ 
tures.  The  profits  of  the  farmer  would  be  no  higher  than  the 
general  level  after  the  fall  in  the  price  of  corn  ;  nor  would  the 
profits  of  the  manufacturer  be  lower  after  the  rise  of  manufactured 
goods ;  the  bounty,  then,  would  not  occasion  any  more  capital  tc  I 

N 


194 


OX  BOUNTIES  ON  rUODUCTIONS. 


\be  employed  on  the  land  in  the  production  of  corn,  nor  any  less  in 
the  manufacture  of  goods.  But  how  would  the  interest  of  the 
landlord  be  affected  ?  On  the  same  principles  that  a  tax  on  raw 
produce  would  lower  the  corn  rent  of  land,  leaving  the  money  rent 
unaltered,  a  bounty  on  production,  which  is  directly  the  contrary 
of  a  tax,  would  raise  corn  rent,  leaving  the  money  rent  unaltered.* 
With  the  same  money  rent  the  landlord  would  have  a  greater  price 
to  pay  for  his  manufactured  goods,  and  a  less  price  for  his  corn ;  he 
would  probably,  therefore,  be  neither  richer  nor  poorer. 

Now,  whether  such  a  measure  would  have  any  operation  on  the 
wages  of  labour,  would  depend  on  the  question,  whether  the  labourer, 
in  purchasing  commodities,  would  pay  as  much  towards  the  tax  as 
he  would  receive  from  the  effects  of  the  bounty,  in  the  low  price 
of  his  food.  If  these  two  quantities  were  equal,  wages  would  con¬ 
tinue  unaltered ;  but  if  the  commodities  taxed  were  not  those 
consumed  by  the  labourer,  his  wages  would  fall,  and  his  employer 
would  be  benefited  by  the  difference.  But  this  is  no  real  advantage 
to  his  employer ;  it  would  indeed  operate  to  increase  the  rate  of  his 
profits,  as  every  fall  of  wages  must  do ;  but  in  proportion  as  the 
labourer  contributed  less  to  the  fund  from’  which  the  bounty  was 
paid,  and  which,  let  it  be  remembered,  must  be  raised,  his  employer 
must  contribute  more ;  in  other  words,  he  would  contribute  as  much 
to  the  tax  by  his  expenditure  as  he  would  receive  in  the  effects  of 
the  bounty  and  the  higher  rate  of  profits  together.  He  obtains  a 
higher  rate  of  profits  to  requite  him  for  his  payment,  not  only  of  his 
own  quota  of  the  tax,  but  of  his  labourer’s  also  ;  the  remuneration 
which  he  receives  for  his  labourer’s  quota  appears  in  diminished 
wages,  or,  which  is  the  same  thing,  in  increased  profits  ;  the  remune¬ 
ration  for  his  own  appears  in  the  diminution  in  the  price  of  the  corn 
which  he  consumes,  arising  from  the  bounty. 

Here  it  will  be  proper  to  remark  the  different  effects  produced 
on  profits  from  an  alteration  in  the  real  labour,  or  natural  value 
of  corn,  and  an  alteration  in  the  relative  value  of  corn,  from 
taxation  and  from  bounties.  If  corn  is  lowered  in  price  by  an 
alteration  in  its  labour  price,  not  only  will  the  rate  of  the  profits 
of  stock  be  altered,  but  the  condition  of  the  capitalist  will  be 
improved.  With  greater  profits,  he  will  have  no  more  to  pay  for 
the  objects  on  which  those  profits  are  expended ;  which  does 
not  happen,  as  we  have  just  seen,  when  the  fall  is  occasioned 
artificially  by  a  bounty.  In  the  real  fall  in  the  value  of  corn, 
arising  from  less  labour  being  required  to  produce  one  of  the  most 
important  objects  of  man’s  consumption,  labour  is  rendered  more 
productive.  With  the  same  capital  the  same  labour  is  employed, 
and  an  increase  of  productions  is  the  result ;  not  only  then  will  the 
rate  of  profits  be  increased,  but  the  condition  of  him  who  obtains 
them  will  be  improved  ;  not  only  will  each  capitalist  have  a  greater 
money  revenue,  if  he  employs  the  same  money  capital,  but  also 

*  Sec  p.  91!. 


ON  BOUNTIES  ON  PRODUCTIONS. 


yCor 

(Eg 3? 

when  that  money  is  expended,  it  will  procure  him  a  greater  sum  of 
commodities;  his  enjoyments  will  be  augmented.  In  the  case  ot 
the  bounty,  to  balance  the  advantage  which  he  derives  from  the  fall 
of  one  commodity,  he  has  the  disadvantage  of  paying  a  price  more 
than  proportionally  high  for  another ;  he  receives  an  increased  rate 
of  profits  in  order  to  enable  him  to  pay  this  higher  price ;  so  that 
his  real  situation,  though  not  deteriorated,  is  in  no  way  improved : 
though  he  gets  a  higher  rate  of  profits,  he  has  no  greater  command 
of  the  produce  of  the  land  and  labour  of  the  country.  When  the 
fall  in  the  value  of  corn  is  brought  about  by  natural  causes,  it  is 
not  counteracted  by  the  rise  of  other  commodities ;  on  the  contrary, 
they  fall  from  the  raw  material  falling  from  which  they  are  made : 
but  when  the  fall  in  corn  is  occasioned  by  artificial  means,  it  is 
always  counteracted  by  a  real  rise  in  the  value  of  some  other  com¬ 
modity,  so  that  if  corn  be  bought  cheaper,  other  commodities  are 
bought  dearer. 

This,  then,  is  a  further  proof  that  no  particular  disadvantage 
arises  from  taxes  on  necessaries,  on  account  of  their  raising  wages 
and  lowering  the  rate  of  profits.  Profits  are  indeed  lowered,  but 
only  to  the  amount  of  the  labourer’s  portion  of  the  tax,  which  must 
at  all  events  be  paid  either  by  his  employer  or  by  the  consumer  of 
the  produce  of  the  labourer’s  work.  Whether  you  deduct  50 1.  per 
annum  from  the  employer’s  revenue,  or  add  50 1.  to  the  prices  of 
the  commodities  which  he  consumes,  can  be  of  no  other  consequence 
to  him  or  to  the  community  than  as  it  may  equally  affect  all  other 
classes.  If  it  be  added  to  the  prices  of  the  commodity,  a  miser 
may  avoid  the  tax  by  not  consuming ;  if  it  be  indirectly  deducted 
from  every  man’s  revenue,  he  cannot  avoid  paying  his  fair  propor¬ 
tion  of  the  public  burthens. 

A  bounty  on  the  production  of  corn,  then,  Avould  produce  no  real 
effect  on  the  annual  produce  of  the  land  and  labour  of  the  country, 
although  it  would  make  corn  relatively  cheap,  and  manufactures 
relatively  dear.  But  suppose  now  that  a  contrary  measure  should 
be  adopted, — that  a  tax  should  be  raised  on  corn  for  the  purpose  of 
affording  a  fund  for  a  bounty  on  the  production  of  commodities. 

In  such  case,  it  is  evident  that  com  would  be  dear  and  commo¬ 
dities  cheap ;  labour  would  continue  at  the  same  price  if  the  labourer 
were  as  much  benefited  by  the  cheapness  of  commodities  as  lie  Avas 
injured  by  tire  dearness  of  corn ;  but  if  he  Avere  not,  Avages  would 
rise,  and  profits  Avould  fall,  while  money  rent  would  continue  the 
same  as  before ;  profits  would  fall,  because,  as  Ave  have  just  explained, 
that  Avould  be  the  mode  in  which  the  labourer’s  share  of  the  tax 
would  be  paid  by  the  employers  of  labour.  By  the  increase  of 
wages  the  labourer  would  be  compensated  for  the  tax  Avhich  he 
Avould  pay  in  the  increased  price  of  corn ;  by  not  expending  any 
part  of  his  Avages  on  the  manufactured  commodities,  he  Avould 
receive  no  part  of  the  bounty  ;  the  bounty  would  be  all  received  by 
the  employers,  and  the  tax  would  be  partly  paid  by  the  employed : 


196 


ON  BOUNTIES  ON  PRODUCTIONS. 


a  remuneration  would  be  made  to  the  labourers,  in  the  shape  of 
wages,  for  this  increased  burden  laid  upon  them,  and  thus  the  rate 
of  profits  would  be  reduced.  In  this  case,  too,  there  would  be  a 
complicated  measure  producing  no  national  result  whatever. 

In  considering  this  question  we  have  purposely  left  out  of  our 
consideration  the  effect  of  such  a  measure  on  foreign  trade ;  we 
have  rather  been  supposing  the  case  of  an  insulated  country,  having- 
no  commercial  connexion  with  other  countries.  We  have  seen 
that,  as  the  demand  of  the  country  for  corn  and  commodities  would 
be  the  same,  whatever  direction  the  bounty  might  take,  there  would 
be  no  temptation  to  remove  capital  from  one  employment  to  another; 
but  this  would  no  longer  be  the  case  if  there  were  foreign  commerce, 
and  that  commerce  were  free.  By  altering  the  relative  value  of 
commodities  and  corn,  by  producing  so  powerful  an  effect  on  their 
natural  prices,  we  should  be  applying  a  strong  stimulus  to  the  ex¬ 
portation  of  those  commodities  whose  natural  prices  were  lowered, 
and  an  equal  stimulus  to  the  importation  of  those  commodities 
whose  natural  prices  were  raised,  and  thus  such  a  financial  measure 
might  entirely  alter  the  natural  distribution  of  employments,  to  the 
advantage  indeed  of  the  foreign  countries,  but  ruinously  to  that  in 
which  so  absurd  a  policy  was  adopted. 


f  197  ] 


CHAPTER  XXIV. 


DOCTRINE  OF  ADAM  SMITH  CONCERNING  THE  RENT 

OF  LAND. 

11  Such  parts  only  of  the  produce  of  land,”  says  Adam  Smith,  “  can 
commonly  be  brought  to  market,  of  which  the  ordinary  price  is 
sufficient  to  replace  the  stock  which  must  be  employed  in  bringing 
them  thither,  together  with  its  ordinary  profits.  If  the  ordinary 
price  is  more  than  this,  the  surplus  part  of  it  will  naturally  go  to 
the  rent  of  land.  Iff  it  is  not  more,  though  the  commodity  can  he 
brought  to  market,  it  can  afford  no  rent  to  the  landlord.  Whether 
the  price  is,  or  is  not  more,  depends  upon  the  demand.” 

This  passage  would  naturally  lead  the  reader  to  conclude  that 
its  author  could  not  have  mistaken  the  nature  of  rent,  and  that  he 
must  have  seen  that  the  quality  of  land  which  the  exigencies  of 
society  might  require  to  be  taken  into  cultivation,  would  depend  on 
“  the  ordinary  price  of  its  produce whether  it  were  “  sufficient  to 
replace  the  stock,  which  must  he  employed  in  cultivating  it,  together 
with  its  ordinary  proffts.” 

But  he  had  adopted  the  notion  that  “  there  were  some  parts  of 
the  produce  of  land  for  which  the  demand  must  always  be  such  as 
to  afford  a  greater  price  than  what  is  sufficient  to  bring  them  to 
market and  he  considered  food  as  one  of  those  parts. 

He  says,  that  u  land,  in  almost  any  situation,  produces  a  greater 
quantity  of  food  than  what  is  sufficient  to  maintain  all  the  labour 
necessary  for  bringing  it  to  market,  in  the  most  liberal  way  in 
which  that  labour  is  ever  maintained.  The  surplus,  too,  is  always 
more  than  sufficient  to  replace  the  stock  which  employed  that 
labour,  together  with  its  profits.  Something,  therefore,  always 
remains  for  a  rent  to  the  landlord.” 

But  what  proof  does  he  give  of  this  ? — no  other  than  the  asser¬ 
tion  that  “  the  most  desert  moors  in  Norway  and  Scotland  produce 
some  sort  of  pasture  for  cattle,  of  which  the  milk  and  the  increase 
are  always  more  than  sufficient,  not  only  to  maintain  all  the  labour 
necessary  for  tending  them,  and  to  pay  the  ordinary  profit  to  the 
farmer,  or  owner  of  the  herd  or  flock,  but  to  afford  some  small  rent 
to  the  landlord.”  Now,  of  this  I  may  be  permitted  to  entertain  a 
doubt ;  I  believe  that  as  yet  in  every  country,  from  the  rudest  to 


m 


DOCTRINE  OF  ADAM  SMITH 


the  most  refined,  there  is  land  of  such  a  quality  that  it  cannot 
yield  a  produce  more  than  sufficiently  valuable  to  replace  the  stock 
employed  upon  it,  together  with  the  profits  ordinary  and  usual  in 
that  country.  In  America  we  all  know  that  this  is  the  case,  and 
yet  no  one  maintains  that  the  principles  which  regulate  rent,  are 
different  in  that  country  and  in  Europe.  But  if  it  were  true  that 
England  had  so  far  advanced  in  cultivation,  that  at  this  time  there 
were  no  lands  remaining  which  did  not  afford  a  rent,  it  would  be 
equally  true,  that  there  formerly  must  have  been  such  lands ;  and 
that  whether  there  be  or  not,  is  of  no  importance  to  this  question, 
for  it  is  the  same  thing  if  there  be  any  capital  employed  in  Great 
Britain  on  land  Avhich  yields  only  the  return  of  stock  with  its 
ordinary  profits,  whether  it  be  employed  on  old  or  on  new  land. 
If  a  farmer  agrees  for  land  on  a  lease  of  seven  or  fourteen  years, 
he  may  propose  to  employ  on  it  a.  capital  of  10,000/.,  knowing  that 
at  the  existing  price  of  grain  and  raw  produce,  he  can  replace  that 
part  of  his  stock  which  he  is  obliged  to  expend,  pay  his  rent,  and 
obtain  the  general  rate  of  profit,  lie  will  not  employ  11,000/., 
unless  the  last  1000/.  can  be  employed  so  productively  as  to  afford 
him  the  usual  profits  of  stock.  In  his  calculation,  whether  he  shall 
employ  it  or  not,  lie  considers  only  whether  the  price  of  raw  pro¬ 
duce  is  sufficient  to  replace  his  expenses  and  profits,  for  he  knows 
that  he  shall  have  no  additional  rent  to  pay.  Even  at  the  expira¬ 
tion  of  his  lease  his  rent  will  not  be  raised ;  for  if  his  landlord 
should  require  rent,  because  this  additional  1000/.  was  employed, 
he  would  withdraw  it ;  since,  by  employing  it,  he  gets,  by  the  sup¬ 
position,  only  the  ordinary  and  usual  profits  which  he  may  obtain 
by  any  other  employment  of  stock  ;  and,  therefore,  he  cannot  afford 
to  pay  rent  for  it,  unless  the  price  of  raw  produce  should  further 
rise,  or,  which  is  the  same  thing,  unless  the  usual  and  general  rate 
of  profits  should  fall. 

If  the  comprehensive  mind  of  Adam  Smith  had  been  directed  to 
this  fact,  he  would  not  have  maintained  that  rent  forms  one  of  the 
component  parts  of  the  price  of  raw  produce ;  for  price  is  every 
where  regulated  by  the  return  obtained  by  this  last  portion  of 
capital,  for  which  no  rent  whatever  is  paid.  If  he  had  adverted  to 
this  principle,  he  would  have  made  no  distinction  between  the  law 
which  regulates  the  rent  of  mines  and  the  rent  of  land. 

“  Whether  a  coal  mine,  for  example,”  he  says,  “  can  afford  any 
rent,  depends  partly  upon  its  fertility,  and  partly  upon  its  situation. 
A  mine  of  any  kind  may  be  said  to  be  either  fertile  or  barren, 
according  as  the  quantity  of  mineral  which  can  be  brought  from  it 
by  a  certain  quantity  of  labour,  is  greater  or  less  than  what  can  be 
brought  by  an  equal  quantity  from  the  greater  part  of  other  mines 
of  the  same  kind.  Some  coal  mines,  advantageously  situated, 
cannot  be  wrought  on  account  of  their  barrenness.  The  produce 
does  not  pay  the  expense.  They  can  afford  neither  profit  nor  rent. 
There  are  some,  of  which  the  produce  is  barely  sufficient  to  pay  the 


CONCERNING  TEE  KENT  OF  LAND. 


Uffi 

labour,  and  replace,  together  with  its  ordinary  profits,  the  stock 
employed  in  working  them.  They  afford  some  profit  to  the  under¬ 
taker  of  the  work,  but  no  rent  to  the  landlord.  They  can  be  wrought 
advantageously  by  nobody  but  the  landlord,  who  being  himself  the 
undertaker  of  the  work,  gets  the  ordinary  profit  of  the  capital  which 
he  employs  in  it.  Many  coal  mines  in  Scotland  are  wrought  in  this 
manner,  and  can  be  wrought  in  no  other.  The  landlord  will  allow 
nobody  else  to  work  them  without  paying  some  rent,  and  nobody 
can  afford  to  pay  any. 

“  Other  coal  mines  in  the  same  country,  sufficiently  fertile,  cannot 
be  wrought  on  account  of  their  situation.  A  quantity  of  mineral 
sufficient  to  defray  the  expense  of  working,  could  be  brought  from 
the  mine  by  the  ordinary,  or  even  less  than  the  ordinary  quantity  of 
labour ;  but  in  an  inland  country,  thinly  inhabited,  and  without 
either  good  roads  or  water-carriage,  this  quantity  could  not  be  sold.” 
The  whole  principle  of  rent  is  here  admirably  and  perspicuously 
explained,  but  every  word  is  as  applicable  to  land  as  it  is  to  mines ; 
yet  he  affirms  that  “  it  is  otherwise  in  estates  above  ground.  The 
proportion,  both  of  their  produce  and  of  their  rent,  is  in  proportion 
to  their  absolute,  and  not  to  their  relative  fertility.”  But,  suppose 
that  there  were  no  land  which  did  not  afford  a  rent ;  then,  the 
amount  of  rent  on  the  worst  land  would  be  in  proportion  to  the 
excess  of  the  value  of  the  produce  above  the  expenditure  of  capital 
and  the  ordinary  profits  of  stock  :  the  same  principle  would  govern 
the  rent  of  land  of  a  somewhat  better  quality,  or  more  favourably 
situated,  and,  therefore,  the  rent  of  this  land  would  exceed  the  rent 
of  that  inferior  to  it,  by  the  superior  advantages  which  it  possessed  ; 
the  same  might  be  said  of  that  of  the  third  quality,  and  so  on  to  the 
very  best.  Is  it  not,  then,  as  certain,  that  it  is  the  relative  fertility 
of  the  land,  which  determines  the  portion  of  the  produce,  which  shall 
be  paid  for  the  rent  of  land,  as  it  is  that  the  relative  fertility  of 
mines  determines  the  portion  of  their  produce,  which  shall  be  paid 
for  the  rent  of  mines  ? 

After  Adam  Smith  has  declared  that  there  are  some  mines  which 
can  only  be  worked  by  the  owners,  as  they  will  afford  only  sufficient 
to  defray  the  expense  of  working,  together  with  the  ordinary  profits 
of  the  capital  employed,  we  should  expect  that  he  would  admit  that 
it  was  these  particular  mines  which  regulated  the  price  of  the  pro¬ 
duce  from  all  mines.  If  the  old  mines  are  insufficient  to  supply  the 
quantity  of  coal  required,  the  price  of  coal  will  rise,  and  will  continue 
rising  till  the  owner  of  a  new  and  inferior  mine  finds  that  he  can 
obtain  the  usual  profits  of  stock  by  working  his  mine.  If  his  mine 
be  tolerably  fertile,  the  rise  will  not  be  great  before  it  becomes  his 
interest  so  to  employ  his  capital ;  but  if  it  be  not  tolerably  fertile, 
it  is  evident  that  the  price  must  continue  to  rise  till  it  will  afford 
him  the  means  of  paying  his  expenses,  and  obtaining  the  ordinary 
profits  of  stock.  It  appears,  then,  that  it  is  always  the  least  fertile 
mine  which  regulates  the  price  of  coal.  Adam  Smith,  however,  is 


200 


DOCTRINE  OF  ADAM  SMITH 


of  a  different  opinion  :  lie  observes,  that  “  the  most  fertile  coal  mine, 
too,  regulates  the  price  of  coals  at  all  the  other  mines  in  its  neigh¬ 
bourhood.  Both  the  proprietor  and  the  undertaker  of  the  work  find, 
the  one  that  he  can  get  a  greater  rent,  the  other,  that  he  can  get  a 
greater  profit,  by  somewhat  underselling  all  their  neighbours.  Their 
neighbours  are  soon  obliged  to  sell  at  the  same  price,  though  they 
cannot  so  well  afford  it,  and  though  it  always  diminishes,  and  some¬ 
times  takes  away  altogether,  both  their  rent  and  their  profit.  Some 
works  are  abandoned  altogether ;  others  can  afford  no  rent,  and  can 
he  wrought  only  by  the  proprietor.”  If  the  demand  for  coal  should 
he  diminished,  or  if  by  new  processes  the  quantity  should  be  in¬ 
creased,  the  price  would  fall,  and  some  mines  would  he  abandoned ; 
hut  in  every  case,  the  price  must  be  sufficient  to  pay  the  expenses 
and  profit  of  that  mine  which  is  -worked  -without  being  charged 
with  rent.  It  is,  therefore,  the  least  fertile  mine  which  regulates 
price.  Indeed,  it  is  so  stated  in  another  place  by  Adam  Smith 
himself,  for  lie  says,  “  The  lowest  price  at  which  coals  can  he  sold 
for  any  considerable  time,  is  like  that  of  all  other  commodities,  the 
price  which  is  barely  sufficient  to  replace,  together  with  its  ordinary 
profits,  the  stock  which  must  he  employed  in  bringing  them  to 
market.  At  a  coal  mine  for  which  the  landlord  can  get  no  rent, 
but  -which  he  must  either  work  himself,  or  let  it  alone  all  altogether, 
the  price  of  coals  must  generally  be  nearly  about  this  price.” 

But  the  same  circumstance,  namely,  the  abundance  and  conse¬ 
quent  cheapness  of  coals,  from  whatever  cause  it  may  arise,  which 
would  make  it  necessary  to  abandon  those  mines  on  which  there 
was  no  rent,  or  a  very  moderate  one,  would,  if  there  were  the  same 
abundance  and  consequent  cheapness  of  raw  produce,  render  it 
necessary  to  abandon  the  cultivation  of  those  lands  for  which  either 
no  rent  was  paid,  or  a  very  moderate  one.  If,  for  example,  potatoes 
should  become  the  general  and  common  food  of  the  people,  as  rice 
is  in  some  countries,  one-fourth,  or  one-half  of  the  land  now  in 
cultivation  would  probably  be  immediately  abandoned ;  for  if,  as 
Adam  Smith  says,  “  an  acre  of  potatoes  will  produce  six  thousand 
weight  of  solid  nourishment,  three  times  the  quantity  produced  by 
the  acre  of  wheat,”  there  could  not  be  for  a  considerable  time  such 
a  multiplication  of  people  as  to  consume  the  quantity  that  might  be 
raised  on  the  land  before  employed  for  the  cultivation  of  wheat ; 
much  land  would  consequently  be  abandoned,  and  rent  would  fall ; 
and  it  would  not  be  till  the  population  had  been  doubled  or  trebled, 
that  the  same  quantity  of  land  could  be  in  cultivation,  and  the  rent 
paid  for  it  as  high  as  before. 

Neither  would  any  greater  proportion  of  the  gross  produce  be 
paid  to  the  landlord,  whether  it  consisted  of  potatoes,  which  would 
feed  three  hundred  people,  or  of  wheat,  which  would  feed  only  one 
hundred ;  because,  though  the  expenses  of  production  would  be 
very  much  diminished  if  the  labourer’s  wages  were  chiefly  regulated 
by  the  price  of  potatoes,  and  not  by  the  price  of  wheat,  and  though, 


CONCERNING  TIIE  RENT  OF  LAND. 


201 


therefore,  the  proportion  of  the  whole  gross  produce,  after  paying 
the  labourers,  would  be  greatly  increased,  yet  no  part  of  that 
additional  proportion  would  go  to  rent,  but  the  whole  invariably  to 
profits, — profits  being  at  all  times  raised  as  wages  fall,  and  lowered 
as  wages  rise.  Whether  wheat  or  potatoes  were  cultivated,  rent 
would  be  governed  by  the  same  principle, — it  would  be  always  equal 
to  the  difference  between  the  quantities  of  produce  obtained  with 
equal  capitals,  either  on  the  same  land,  or  on  land  of  different 
qualities  ;  and,  therefore,  while  lands  of  the  same  quality  were 
cultivated,  and  there  was  no  alteration  in  their  relative  fertility  or 
advantages,  rent  would  always  bear  the  same  proportion  to  the 
gross  produce. 

Adam  Smith,  however,  maintains  that  the  proportion  which  falls 
to  the  landlord  would  be  increased  by  a  diminished  cost  of  pro¬ 
duction,  and,  therefore,  that  he  would  receive  a  larger  share  as  well 
as  a  larger  quantity,  from  an  abundant  than  from  a  scanty  produce. 
“  A  rice  field,”  he  says,  “  produces  a  much  greater  quantity  of  food 
than  the  most  fertile  corn  field.  Two  crops  in  the  year,  from  thirty 
to  sixty  bushels  each,  are  said  to  be  the  ordinary  produce  of  an 
acre.  Though  its  cultivation,  therefore,  requires  more  labour,  a 
much  greater  surplus  remains  after  maintaining  all  that  labour. 
In  those  rice  countries,  therefore,  where  rice  is  the  common  and 
favourite  vegetable  food  of  the  people,  and  where  the  cultivators 
are  chiefly  maintained  with  it,  a  greater  share  of  this  greater  surplus 
should  belong  to  the  landlord  than  in  corn  countries .” 

Mr  Buchanan  also  remarks  that  “  it  is  quite  clear,  that  if  any 
other  produce,  which  the  land  yielded  more  abundantly  than 
corn,  were  to  become  the  common  food  of  the  people,  the  rent 
of  the  landlord  would  be  improved  in  proportion  to  its  greater 
abundance.” 

If  potatoes  were  to  become  the  common  food  of  the  people,  there 
would  be  a  long  interval  during  which  the  landlords  would  suffer 
an  enormous  deduction  of  rent.  They  would  not  probably  receive 
nearly  so  much  of  the  sustenance  of  man  as  they  now  receive,  while 
that  sustenance  would  fall  to  a  third  of  its  present  value.  But  all 
manufactured  commodities,  on  which  a  part  of  the  landlord’s  rent  is 
expended,  would  suffer  no  other  fall  than  that  which  proceeded 
from  the  fall  in  the  raw  material  of  which  they  were  made,  and 
which  would  arise  only  from  the  greater  fertility  of  the  land,  which 
might  then  be  devoted  to  its  production. 

When,  from  the  progress  of  population,  land  of  the  same  quality 
as  before  should  be  taken  into  cultivation,  the  landlord  wTould  have 
not  only  the  same  proportion  of  the  produce  as  before,  but  that 
proportion  would  also  be  of  the  same  value  as  before.  Rent,  then, 
would  be  the  same  as  before ;  profits,  however,  would  be  much 
higher,  because  the  price  of  food,  and  consequently  wages,  would 
be  much  lower.  High  profits  are  favourable  to  the  accumulation 
of  capital.  The  demand  for  labour  would  further  increase,  and 


202 


DOCTRINE  OF  ADAM  SMITH 


landlords  would  be  permanently  benefited  by  the  increased  demand 
for  land. 

Indeed,  the  very  same  lands  might  be  cultivated  much  higher 
when  such  an  abundance  of  food  could  be  produced  from  them, 
and,  consequently,  they  would,  in  the  progress  of  society,  admit  of 
much  higher  rents,  and  would  sustain  a  much  greater  population 
than  before.  This  could  not  fail  to  be  highly  beneficial  to  land¬ 
lords,  and  is  consistent  with  the  principle  which  this  inquiry,  I 
think,  will  not  fail  to  establish — that  all  extraordinary  profits  are 
in  their  nature  but  of  limited  duration,  as  the  whole  surplus  produce 
of  the  soil,  after  deducting  from  it  only  such  moderate  profits  as  are 
sufficient  to  encourage  accumulation,  must  finally  rest  with  the 
landlord. 

With  so  low  a  price  of  labour  as  such  an  abundant  produce 
would  cause,  not  only  would  the  lands  already  in  cultivation  yield 
a  much  greater  quantity  of  produce,  but  they  would  admit  of  a 
great  additional  capital  being  employed  on  them,  and  a  greater 
value  to  be  drawn  from  them,  and,  at  the  same  time,  lands  of  a 
very  inferior  quality  could  be  cultivated  with  high  profits,  to  the 
great  advantage  of  landlords,  as  well  as  to  the  whole  class  of  con¬ 
sumers.  The  machine  which  produced  the  most  important  article 
of'  consumption  would  be  improved,  and  would  be  well  paid  for 
according  as  its  services  were  demanded.  All  the  advantages 
would,  in  the  first  instance,  be  enjoyed  by  labourers,  capitalists, 
and  consumers ;  but,  with  the  progress  of  population,  they  would 
be  gradually  transferred  to  the  proprietors  of  the  soil. 

Independently  of  these  improvements,  in  which  the  community 
have  an  immediate  and  the  landlords  a  remote  interest,  the  interest 
of  the  landlord  is  always  opposed  to  that  of  the  consumer  and 
manufacturer.  Corn  can  be  permanently  at  an  advanced  price  only 
because  additional  labour  is  necessary  to  produce  it ;  because  its 
cost  of  production  is  increased.  The  same  cause  invariably  raises 
rent,  it  is  therefore  for  the  interest  of  the  landlord  that  the  cost 
attending  the  production  of  corn  should  be  increased.  This,  how¬ 
ever,  is  not  the  interest  of  the  consumer;  to  him  it  is  desirable  that 
corn  should  be  low  relatively  to  money  and  commodities,  for  it  is 
always  with  commodities  or  money  that  corn  is  purchased.  Neither 
is  it  the  interest  of  the  manufacturer  that  corn  should  be  at  a  high 
price,  for  the  high  price  of  corn  will  occasion  high  wages,  but  will 
not  raise  the  price  of  his  commodity.  Not  only,  then,  must  more 
of  his  commodity,  or,  which  comes  to  the  same  thing,  the  value  of 
more  of  his  commodity,  be  given  in  exchange  for  the  corn  which  he 
himself  consumes,  but  more  must  be  given,  or  the  value  of  more, 
for  wages  to  his  workmen,  for  which  he  will  receive  no  remuneration. 
All  classes,  therefore,  except  the  landlords,  will  be  injured  by  the 
increase  in  the  price  of  corn.  The  dealings  between  the  landlord 
and  the  public  are  not  like  dealings  in  trade,  whereby  both  the 
seller  and  buyer  may  equally  be  said  to  gain,  but  the  loss  is  wholly 


CONCERNING  THE  RENT  OF  LAND. 


203 


on  one  side,  and  the  gain  wholly  on  the  other ;  and  if  corn  could 
by  importation  be  procured  cheaper,  the  loss  in  consequence  of  not 
importing  is  far  greater  on  one  side  than  the  gain  is  on  the  other. 

Adam  Smith  never  makes  any  distinction  between  a  low  value 
of  money  and  a  high  value  of  corn,  and  therefore  infers,  that  the 
interest  of  the  landlord  is  not  opposed  to  that  of  the  rest  of  the 
community.  In  the  first  case,  money  is  low  relatively  to  all  com¬ 
modities  ;  in  the  other,  corn  is  high  relatively  to  all.  In  the  first, 
corn  and  commodities  continue  at  the  same  relative  values ;  in  the 
second,  corn  is  higher  relatively  to  commodities  as  well  as  money. 

The  following  observation  of  Adam  Smith  is  applicable  to  a  low 
value  of  money,  but  it  is  totally  inapplicable  to  a  high  value  of  corn. 
“  If  importation  (of  corn)  was  at  all  times  free,  our  farmers  and 
country  gentlemen  would  probably,  one  year  with  another,  get  less 
money  for  their  corn  than  they  do  at  present  when  importation  is 
at  most  times  in  effect  prohibited  ;  but  the  money  which  they  got 
would  be  of  more  value,  ivould  buy  more  goods  of  all  other  kinds, 
and  would  employ  more  labour.  Their  real  wealth,  their  real 
revenue,  therefore,  would  be  the  same  as  at  present,  though  it  might 
be  expressed  by  a  smaller  quantity  of  silver ;  and  they  would  neither 
be  disabled  nor  discouraged  from  cultivating  corn  as  much  as  they 
do  at  present.  On  the  contrary,  as  the  rise  in  the  real  value  of 
silver,  in  consequence  of  lowering  the  money  price  of  corn,  lowers 
somewhat  the  money  price  of  all  other  commodities,  it  gives  the 
industry  of  the  country  where  it  takes  place  some  advantage  in  all 
foreign  markets,  and  thereby  tends  to  encourage  and  increase  that 
industry.  But  the  extent  of  the  home  market  for  corn  must  be  in 
proportion  to  the  general  industry  of  the  country  where  it  grows, 
or  to  the  number  of  those  who  produce  something  else  to  give  in 
exchange  for  corn.  But  in  every  country  the  home  market,  as  it 
is  the  nearest  and  most  convenient,  so  is  it  likewise  the  greatest 
and  most  important  market  for  corn.  That  rise  in  the  real  value 
of  silver,  therefore,  which  is  the  effect  of  lowering  the  average  money 
price  of  corn,  tends  to  enlarge  the  greatest  and  most  important 
market  for  corn,  and  thereby  to  encourage  instead  of  discouraging 
its  growth.” 

A  high  or  low  money  price  of  corn,  arising  from  the  abundance 
and  cheapness  of  gold  and  silver,  is  of  no  importance  to  the  land¬ 
lord,  as  every  sort  of  produce  would  be  equally  affected,  just  as 
Adam  Smith  describes  :  but  a  relatively  high  price  of  corn  is  at  all 
times  greatly  beneficial  to  the  landlord ;  for,  first,  it  gives  him  a 
greater  quantity  of  corn  for  rent ;  and,  secondly,  for  every  equal 
measure  of  corn  he  will  have  a  command,  not  only  over  a  greater 
quantity  of  money,  but  over  a  greater  quantity  of  every  commodity 
which  money  can  purchase. 


[  204  ] 


CHAPTER  XXV. 


ON  COLONIAL  TRADE. 

Adam  Smith,  in  his  observations  on  colonial  trade,  has  shown 
most  satisfactorily  the  advantages  of  a  free  trade,  and  the  injustice 
suffered  by  colonies,  in  being  prevented  by  their  mother  countries 
from  selling  their  produce  at  the  dearest  market,  and  buying  their 
manufactures  and  stores  at  the  cheapest.  He  has  shown,  that  by 
permitting  every  country  freely  to  exchange  the  produce  of  its 
industry  when  and  where  it  pleases,  the  best  distribution  of  the 
labour  of  the  world  will  be  effected,  and  the  greatest  abundance  of 
the  necessaries  and  enjoyments  of  human  life  will  be  secured. 

He  has  attempted  also  to  show  that  this  freedom  of  commerce, 
which  undoubtedly  promotes  the  interest  of  the  whole,  promotes 
also  that  of  each  particular  country ;  and  that  the  narrow  policy 
adopted  in  the  countries  of  Europe  respecting  their  colonies  is  not 
less  injurious  to  the  mother  countries  themselves  than  to  the  colonies 
whose  interests  are  sacrificed. 

“  The  monopoly  of  the  colony  trade,”  he  says,  “  like  all  the  other 
mean  and  malignant  expedients  of  the  mercantile  system,  depresses 
the  industry  of  all  other  countries,  but  chiefly  that  of  the  colonies, 
without  in  the  least  increasing,  but,  on  the  contrary,  diminishing 
that  of  the  country  in  whose  favour  it  is  established.” 

This  part  of  his  subject,  however,  is  not  treated  in  so  clear  and 
convincing  a  manner  as  that  in  which  he  shows  the  injustice  of  this 
system  towards  the  colony. 

It  may,  I  think,  be  doubted  whether  a  mother  country  may  not 
sometimes  be  benefited  by  the  restraints  to  which  she  subjects  her 
colonial  possessions.  Who  can  doubt,  for  example,  that  if  England 
were  the  colony  of  France,  the  latter  country  would  be  benefited 
by  a  heavy  bounty  paid  by  England  on  the  exportation  of  corn, 
cloth,  or  any  other  commodities?  In  examining  the  question  of 
bounties,  on  the  supposition  of  corn  being  at  4 1.  per  quarter  in  this 
country,  we  saw,  that  with  a  bounty  of  10s.  per  quarter  on  expor¬ 
tation  in  England,  corn  would  have  been  reduced  to  3k  10s.  in 
France.  Now,  if  corn  had  previously  been  at  3 1.  15s.  per  quarter 
in  France,  the  French  consumers  would  have  been  benefited  by  5s. 
per  quarter  on  all  imported  corn ;  if  the  natural  price  of  corn  in 


ON  COLONIAL  TRADE. 


205 


France  were  before  41.,  they  would  have  gained  the  whole  bounty 
of  10s.  per  quarter.  France  would  thus  be  benefited  by  the  loss 
sustained  by  England :  she  would  not  gain  a  part  only  of  what 
England  lost,  but  the  whole. 

It  may,  however,  be  said  that  a  bounty  on  exportation  is  a 
measure  of  internal  policy,  and  could  not  easily  be  imposed  by  the 
mother  country. 

If  it  would  suit  the  interests  of  Jamaica  and  Holland  to  make 
an  exchange  of  the  commodities  which  they  respectively  produce, 
without  the  intervention  of  England,  it  is  quite  certain  that,  by 
their  being  prevented  from  so  doing,  the  interests  of  Holland  and 
Jamaica  would  suffer ;  but  if  Jamaica  is  obliged  to  send  her  goods 
to  England,  and  there  exchange  them  for  Dutch  goods,  an  English 
capital,  or  English  agency,  will  be  employed  in  a  trade  in  which  it 
would  not  otherwise  be  engaged.  It  is  allured  thither  by  a  bounty, 
not  paid  by  England,  but  by  Holland  and  Jamaica. 

That  the  loss  sustained  through  a  disadvantageous  distribution 
of  labour  in  two  countries  may  be  beneficial  to  one  of  them,  while 
the  other  is  made  to  suffer  more  than  the  loss  actually  belonging 
to  such  a  distribution,  has  been  stated  by  Adam  Smith  himself; 
which,  if  true,  will  at  once  prove  that  a  measure  which  may  be 
greatly  hurtful  to  a  colony  may  be  partially  beneficial  to  the  mother 
country. 

Speaking  of  treaties  of  commerce,  he  says,  “  When  a  nation  binds 
itself  by  treaty,  either  to  permit  the  entry  of  certain  goods  from 
one  foreign  country  which  it  prohibits  from  all  others,  or  to  exempt 
the  goods  of  one  country  from  duties  to  which  it  subjects  those  of  all 
others,  the  country,  or  at  least  the  merchants  and  manufacturers  of 
the  country,  whose  commerce  is  so  favoured,  must  necessarily  derive 
great  advantage  from  the  treaty.  Those  merchants  and  manufac¬ 
turers  enjoy  a  sort  of  monopoly  in  the  country  which  is  so  indulgent 
to  them.  That  country  becomes  a  market  both  more  extensive 
and  more  advantageous  for  their  goods ;  more  extensive,  because 
the  goods  of  other  nations,  being  either  excluded  or  subjected  to 
heavier  duties,  it  takes  off  a  greater  quantity  of  them  ;  more  advan¬ 
tageous,  because  the  merchants  of  the  favoured  country,  enjoying 
a  sort  of  monopoly  there,  will  often  sell  their  goods  for  a  better 
price  than  if  exposed  to  the  free  competition  of  all  other  nations.” 

Let  the  two  nations  between  which  the  commercial  treaty  is 
made  be  the  mother  country  and  her  colony,  and  Adam  Smith,  it 
is  evident,  admits  that  a  mother  country  may  be  benefited  by 
oppressing  her  colony.  It  may,  however,  be  again  remarked,  that 
unless  the  monopoly  of  the  foreign  market  be  in  the  hands  of  an 
exclusive  company,  no  more  will  be  paid  for  commodities  by  foreign 
purchasers  than  by  home  purchasers ;  the  price  which  they  will 
both  pay  will  not  differ  greatly  from  their  natural  price  in  the 
country  where  they  are  produced.  England,  for  example,  will, 
under  ordinary  circumstances,  always  be  able  to  buy  French  goods 


206 


OX  COLGXl AL,  TIXADK. 


at  the  natural  price  oi  those  goods  in  France,  and  France  would 
have  an  equal  privilege  of  buying  English  goods  at  their  natural 
price  in  England.  But  at  these  prices  goods  would  be  bought 
without  a  treaty.  Of  what  advantage  or  disadvantage,  then,  is  the 
treaty  to  either  party  ? 

The  d  isadvantage  of  the  treaty  to  the  importing  country  would 
be  this  :  it  would  bind  her  to  purchase  a  commodity,  from  England 
for  example,  at  the  natural  price  of  that  commodity  in  England, 
when  she  might  perhaps  have  bought  it  at  the  much  lower  natural 
price  of  some  other  country.  It  occasions  then  a  disadvantageous 
distribution  of  the  general  capital,  which  foils  chiefly  on  the  country 
bound  by  its  treaty  to  buy  in  the  least  productive  market ;  but  it 
gives  no  advantage  to  the  seller  on  account  of  any  supposed  mono¬ 
poly,  for  he  is  prevented  by  the  competition  of  his  own  country¬ 
men  from  selling  his  goods  above  their  natural  price ;  at  which  he 
would  sell  them,  whether  he  exported  them  to  France,  Spain,  or 
the  West  Indies,  or  sold  them  for  home  consumption. 

In  what,  then,  does  the  advantage  of  the  stipulation  in  the  treaty 
consist  ?  It  consists  in  this  :  these  particular  goods  could  not  have 
been  made  in  England  for  exportation,  but  for  the  privilege  which 
she  alone  had  of  serving  this  particular  market ;  for  the  competition 
of  that  country,  where  the  natural  price  was  lower,  would  have  de¬ 
prived  her  of  all  chance  of  selling  those  commodities.  This,  how¬ 
ever,  would  have  been  of  little  importance,  if  England  were  quite 
secure  that  she  could  sell  to  the  same  amount  any  other  goods  which 
she  might  fabricate,  either  in  the  French  market,  or  with  equal 
advantage  in  any  other.  The  object  which  England  has  in  view, 
is,  for  example,  to  buy  a  quantity  of  French  wines  of  the  value  of 
5000/. — she  desires,  then,  to  sell  goods  somewhere  by  which  she  may 
get  5000/.  for  this  purpose.  If  France  gives  her  a  monopoly  of  the 
cloth  market,  she  will  readily  export  cloth  for  this  purpose ;  but  if 
the  trade  is  free,  the  competition  of  other  countries  may  prevent  the 
natural  price  of  cloth  in  England  from  being  sufficiently  low  to 
enable  her  to  get  5000/.  by  the  sale  of  cloth,  and  to  obtain  the  usual 
profits  by  such  an  employment  of  her  stock.  The  industry  of 
England  must  be  employed,  then,  on  some  other  commodity  ;  but 
there  may  be  none  of  her  productions  which,  at  the  existing  value 
of  money,  she  can  afford  to  sell  at  the  natural  price  of  other  coun¬ 
tries.  What  is  the  consequence  ?  The  wine  drinkers  of  England 
are  still  willing  to  give  5000/.  for  their  wine,  and  consequently 
5000/.  in  money  is  exported  to  France  for  that  purpose.  By  this 
exportation  of  money,  its  value  is  raised  in  England,  and  lowered  in 
other  countries ;  and  with  it  the  natural  price  of  all  commodities 
produced  by  British  industry  is  also  lowered.  The  advance  in  the 
value  of  money  is  the  same  thing  as  the  decline  in  the  price  of 
commodities.  To  obtain  5000/.,  British  commodities  may  now  be 
exported ;  for  at  their  reduced  natural  price  they  may  now  enter 
into  competition  with  the  goods  of  other  countries.  Moie  goods, 


ON  COLONIAL  TUADE. 


207 


are  sold,  however,  at  the  low  prices  to  obtain  the  5000/.  required, 
which,  when  obtained,  will  not  procure  the  same  quantity  of  wine  ; 
because,  whilst  the  diminution  of  money  in  England  has  lowered 
the  natural  price  of  goods  there,  the  increase  of  money  in  France 
has  raised  the  natural  price  of  goods  and  wine  in  France.  Less 
wine,  then,  will  be  imported  into  England,  in  exchange  for  its 
commodities,  when  the  trade  is  perfectly  free,  than  when  she  is 
peculiarly  favoured  by  commercial  treaties.  The  rate  of  profits, 
however,  will  not  have  varied ;  money  will  have  altered  in  relative 
value  in  the  two  countries,  and  the  advantage  gained  by  France  will 
be  the  obtaining  a  greater  quantity  of  English,  in  exchange  for  a 
given  quantity  of  F rench,  goods,  while  the  loss  sustained  by  Eng¬ 
land  will  consist  in  obtaining  a  smaller  quantity  of  French  goods 
in  exchange  for  a  given  quantity  of  those  of  England. 

Foreign  trade,  then,  whether  fettered,  encouraged,  or  free,  w  ill 
always  continue,  whatever  may  be  the  comparative  difficulty  of 
production  in  different  countries  ;  but  it  can  only  be  regulated  by 
altering  the  natural  price,  not  the  natural  value,  at  which  commo¬ 
dities  can  be  produced  in  those  countries,  and  that  is  effected  by 
altering  the  distribution  of  the  precious  metals.  This  explanation 
confirms  the  opinion  which  I  have  elsewhere  given,  that  there  is  not 
a  tax,  a  bounty,  or  a  prohibition,  on  the  importation  or  exportation 
of  commodities,  which  does  not  occasion  a  different  distribution  of 
the  precious  metals,  and  which  does  not,  therefore,  everywhere  alter 
both  the  natural  and  the  market  price  of  commodities. 

It  is  evident,  then,  that  the  trade  with  a  colony  may  be  so  regu¬ 
lated,  that  it  shall  at  the  same  time  be  less  beneficial  to  the  colony, 
and  more  beneficial  to  the  mother  country,  than  a  perfectly  free 
trade.  As  it  is  disadvantageous  to  a  single  consumer  to  be  restricted 
in  Ins  dealings  to  one  particular  shop,  so  is  it  disadvantageous  for  a 
nation  of  consumers  to  be  obliged  to  purchase  of  one  particular 
country.  If  the  shop  or  the  country  afforded  the  goods  required 
the  cheapest,  they  would  be  secure  of  selling  them  without  any 
such  exclusive  privilege ;  and  if  they  did  not  sell  cheaper,  the 
general  interest  would  require  that  they  should  not  be  encouraged 
to  continue  a  trade  which  they  could  not  carry  on  at  an  equal  ad¬ 
vantage  with  others.  The  shop,  or  the  selling  country,  might  lose 
by  the  change  of  employments,  but  the  general  benefit  is  never  so 
fully  secured,  as  by  the  most  productive  distribution  of  the  general 
capital ;  that  is  to  say,  by  a  universally  free  trade. 

An  increase  in  the  cost  of  production  of  a  commodity,  if  it  be  an 
article  of  the  first  necessity,  will  not  necessarily  diminish  its  con¬ 
sumption  ;  for  although  the  general  power  of  the  purchasers  to 
consume  is  diminished  by  the  rise  of  any  one  commodity,  yet  they 
may  relinquish  the  consumption  of  some  other  commodity  whose  cost 
of  production  has  not  risen.  In  that  case,  the  quantity  supplied, 
and  the  quantity  demanded,  will  be  the  same  as  before  ;  the  cost  of 
production  only  will  have  increased,  and  yet  the  price  will  rise, 


208 


ON  COLONIAL  TRADE. 


and  must  rise,  to  place  the  profits  of  the  producer  of  the  enhanced 
commodity  on  a  level  with  the  profits  derived  from  other  trades. 

M.  Say  acknowledges  that  the  cost  of  production  is  the  founda¬ 
tion  of  price,  and  yet  in  various  parts  of  his  book  he  maintains  that 
price  is  regulated  by  the  proportion  which  demand  bears  to  supply. 
The  real  and  ultimate  regulator  of  the  relative  value  of  any  two 
commodities,  is  the  cost  of  their  production,  and  not  the  respective 
quantities  which  may  be  produced,  nor  the  competition  amongst 
the  purchasers. 

According  to  Adam  Smith,  the  colony  trade,  by  being  one  in 
which  British  capital  only  can  be  employed,  has  raised  the  rate  of 
profits  of  all  other  trades ;  and  as,  in  his  opinion,  high  profits,  as 
well  as  high  wages,  raise  the  prices  of  commodities,  the  monopoly 
of  the  colony  trade  has  been,  he  thinks,  injurious  to  the  mother 
country ;  as  it  has  diminished  her  power  of  selling  manufactured 
commodities  as  cheap  as  other  countries.  He  says,  that  u  in  con¬ 
sequence  of  the  monopoly,  the  increase  of  the  colony  trade  has  not 
so  much  occasioned  an  addition  to  the  trade  which  Great  Britain 
had  before,  as  a  total  change  in  its  direction.  Secondly,  this 
monopoly  has  necessarily  contributed  to  keep  up  the  rate  of  profit 
in  all  the  different  branches  of  British  trade,  higher  than  it  natu¬ 
rally  would  have  been,  had  all  nations  been  allowed  a  free  trade 
to  the  British  colonies.”  u  But  whatever  raises  in  any  country  the 
ordinary  rate  of  profit  higher  than  it  otherwise  would  be,  necessarily 
subjects  that  country  both  to  an  absolute,  and  to  a  relative  disad¬ 
vantage  in  every  branch  of  trade  of  which  she  has  not  the  monopoly. 
It  subjects  her  to  an  absolute  disadvantage,  because  in  such  branches 
of  trade,  her  merchants  cannot  get  this  greater  profit  without  selling 
dearer  than  they  otherwise  would  do,  both  the  goods  of  foreign 
countries  which  they  import  into  their  own,  and  the  goods  of  their 
own  country  which  they  export  to  foreign  counti'ies.  Their  own 
country  must  both  buy  dearer  and  sell  dearer ;  must  both  buy  less 
and  sell  less  ;  must  both  enjoy  less  and  produce  less  than  she  other¬ 
wise  would  do.” 

“  Our  merchants  frequently  complain  of  the  high  wages  of  British 
labour  as  the  cause  of  their  manufactures  being  undersold  in  foreign 
markets ;  but  they  are  silent  about  the  high  profits  of  stock.  They 
complain  of  the  extravagant  gain  of  other  people,  but  they  say 
nothing  of  their  own.  The  high  profits  of  British  stock,  however, 
may  contribute  towards  raising  the  price  of  British  manufacture  in 
many  cases  as  much,  and  in  some  perhaps  more,  than  the  high 
wages  of  British  labour.” 

I  allow  that  the  monopoly  of  the  colony  trade  will  change,  and 
often  prejudicially,  the  direction  of  capital ;  but  from  what  I  have 
already  said  on  the  subject  of  profits,  it  will  be  seen  that  any 
change  from  one  foreign  trade  to  another,  or  from  home  to  foreign 
trade,  cannot,  in  my  opinion,  affect  the  rate  of  profits.  The  injury 
suffered  will  be  what  I  have  just  described  ;  there  will  be  a  worse 


ON  COLONIAL  TRADE. 


-209 


distribution  of  the  general  capital  and  industry,  and,  therefore,  less 
will  be  produced.  The  natural  price  of  commodities  will  he  raised, 
and  therefore,  though  the  consumer  will  be  able  to  purchase  to  the 
same  money  value,  he  will  obtain  a  less  quantity  of  commodities. 
It  will  he  seen,  too,  that  if  it  even  had  the  effect  of  raising  profits, 
it  would  not  occasion  the  least  alteration  in  prices ;  prices  being- 
regulated  neither  by  wages  nor  profits. 

And  does  not  Adam  Smith  agree  in  this  opinion,  when  he  says, 
that  “  the  prices  of  commodities,  or  the  value  of  gold  and  silver  as 
compared  with  commodities,  depends  upon  the  proportion  between 
the  quantity  of  labour  which  is  necessary  in  order  to  bring  a  certain 
quantity  of  gold  and  silver  to  market,  and  that  which  is  necessary 
to  bring  thither  a  certain  quantity  of  any  other  sort  of  goods  ?” 
That  quantity  will  not  be  affected,  whether  profits  be  high  or  low, 
or  wages  low  or  high.  How  then  can  prices  be  raised  by  high 
profits  ? 


0 


L  210  1 


CHAPTER  XXYL 


ON  CROSS  AND  NET  REVENUE. 

Adam  Smith  constantly  magnifies  the  advantages  which  a  country 
derives  from  a  large  gross,  rather  than  a  large  net  income.  “  In 
proportion  as  a  greater  share  of  the  capital  of  a  country  is  employed 
in  agriculture,”  he  says,  “  the  greater  will  be  the  quantity  of  pro¬ 
ductive  labour  which  it  puts  into  motion  within  the  country;  as 
will  likewise  be  the  value  which  its  employment  adds  to  the  annual 
produce  of  the  land  and  labour  of  the  society.  After  agriculture, 
the  capital  employed  in  manufactures  puts  into  motion  the  greatest 
quantity  of  productive  labour,  and  adds  the  greatest  value  to  the 
annual  produce.  That  which  is  employed  in  the  trade  of  exportation 
has  the  least  effect  of  any  of  the  three.”  * 

Granting,  for  a  moment,  that  this  were  true ;  what  would  be  the 
advantage  resulting  to  a  country  from  the  employment  of  a  great 
quantity  of  productive  labour,  if,  whether  it  employed  that  quantity 
or  a  smaller,  its  net  rent  and  profits  together  would  be  the  same. 
The  whole  produce  of  the  land  and  labour  of  every  country  is  divided 
into  three  portions  :  of  these,  one  portion  is  devoted  to  wages, 
another  to  profits,  and  the  other  to  rent.  It  is  from  the  two  last 
portions  only,  that  any  deductions  can  be  made  for  taxes,  or  for 
savings  ;  the  former,  if  moderate,  constituting  always  the  necessary 
expenses  of  production.f  To  an  individual  with  a  capital  of  20,000/., 
whose  profits  were  2000/.  per  annum,  it  would  be  a  matter  quite 
indifferent  whether  his  capital  would  employ  a  hundred  or  a  thousand 
men,  whether  the  commodity  produced,  sold  for  10,000/.  or  for 
20,000/.,  provided,  in  all  cases,  his  profits  were  not  diminished  below 
2000/.  Is  not  the  real  interest  of  the  nation  similar?  Provided 

*  M.  Say  is  of  the  same  opinion  with  Adam  Smith  :  “  The  most  productive  employ¬ 
ment  of  capital,  for  the  country  in  general,  after  that  on  the  land,  is  that  of  manufac¬ 
tures  and  of  home  trade  ;  because  it  puts  in  activity  an  industry  of  which  the  profits 
are  gained  in  the  country,  while  those  capitals  which  are  employed  in  foreign  commerce, 
make  the  industry  and  lands  of  all  countries  to  he  productive,  without  distinction. 

“  The  employment  of  capital  the  least  favourable  to  a  nation,  is  that  of  carrying 
the  produce  of  one  foreign  country  to  another.” — Say,  vol.  ii.  p.  120. 

f  Perhaps  this  is  expressed  too  strongly,  as  more  is  generally  allotted  to  the  labourer 
under  the  name  of  wages,  than  the  absolutely  necessaty  expenses  of  production.  In 
that  case  a  part  of  the  net  produce  of  the  country  is  received  by  the  labourer,  and  may 
be  saved  or  expended  by  him  ;  or  it  may  enable  him  to  contribute  to  the  defence  of 
the  country. 


OX  GROSS  AND  NET  REVENUE. 


211 


its  net  real  income,  its  rent  and  profits  be  the  same,  it  is  of  no  im¬ 
portance  whether  the  nation  consists  of  ten  or  of  twelve  millions  of 
inhabitants.  Its  power  of  supporting  fleets  and  armies,  and  ail 
species  of  unproductive  labour,  must  be  in  proportion  to  its  net,  and 
not  in  proportion  to  its  gross,  income.  If  five  millions  of  men  could 
produce  as  much  food  and  clothing  as  was  necessary  for  ten 
millions,  food  and  clothing  for  five  millions  would  be  the  net  revenue. 
Would  it  be  of  any  advantage  to  the  country,  that  to  produce  this 
same  net  revenue,  seven  millions  of  men  should  be  required,  that  is 
to  say,  that  seven  millions  should  be  employed  to  produce  food  and 
clothing  sufficient  for  twelve  millions  ?  The  food  and  clothing  of 
five  millions  would  be  still  the  net  revenue.  The  employing  a 
greater  number  of  men  would  enable  us  neither  to  add  a  man  to  our 
army  and  navy,  nor  to  contribute  one  guinea  more  in  taxes. 

It  is  not  on  the  grounds  of  any  supposed  advantage  accruing  from 
a  large  population,  or  of  the  happiness  that  may  be  enjoyed  by  a 
greater  number  of  human  beings,  that  Adam  Smith  supports  the 
preference  of  that  employment  of  capital,  which  gives  motion  to  the 
greatest  quantity  of  industry,  but  expressly  on  the  ground  of  its 
increasing  the  power  of  the  country,*  for  he  says,  that  “  the  riches, 
and,  so  far  as  power  depends  upon  riches,  the  power  of  every  country 
must  always  be  in  proportion  to  the  value  of'  its  annual  produce, 
the  fund  from  which  all  taxes  must  ultimately  be  paid.”  It  must, 
however,  be  obvious,  that  the  power  of  paying  taxes,  is  in  proportion 
to  the  net,  and  not  in  proportion  to  the  gross,  revenue. 

In  the  distribution  of  employments  amongst  all  countries,  the 
capital  of  poorer  nations  will  be  naturally  employed  in  those  pursuits, 
wherein  a  great  quantity  of  labour  is  supported  at  home,  because 
in  such  countries  the  food  and  necessaries  for  an  increasing  popula¬ 
tion  can  be  most  easily  procured.  In  rich  countries,  on  the  contrary, 
where  food  is  dear,  capital  will  naturally  flow,  when  trade  is  free, 
into  those  occupations  wherein  the  least  quantity  of  labour  is 
required  to  be  maintained  at  home  :  such  as  the  carrying  trade,  the 
distant  foreign  trade,  and  trades  where  expensive  machinery  is 
required ;  to  trades  where  profits  are  in  proportion  to  the  capital, 
and  not  in  proportion  to  the  quantity  of  labour  employed.! 

Although  I  admit,  that,  from  the  nature  of  rent,  a  given  capital 
employed  in  agriculture,  on  any  but  the  land  last  cultivated,  puts 
in  motion  a  greater  quantity  of  labour  than  an  equal  capital 

*  M.  Say  has  totally  misunderstood  me  in  supposing  that  I  have  considered  as 
nothing  the  happiness  of  so  many  human  beings.  I  think  the  text  sufficiently  shows 
that  I  was  confining  my  remarks  to  the  particular  grounds  on  which  Adam  Smith  had 
rested  it. 

t  “  It  is  fortunate  that  the  natural  course  of  things  draws  capital,  not  to  those 
employments  where  the  greatest  profits  are  made,  but  to  those  where  the  operation  is 
most  profitable  to  the  community.” — Vol.  ii.  p.  122.  M.  Say  has  not  told  us  what 
those  employments  are,  which,  while  they  are  the  most  profitable  to  the  individual, 
are  not  the  most  profitable  to  the  State.  If  countries  with  limited  capitals,  but  with 
abundance  of  fertile  land,  do  not  early  engage  in  foreign  trade,  the  reason  is,  because 
it  is  less  profitable  to  individuals,  and  therefore  also  less  urofitable  to  the  State. 


212 


ON  GROSS  AND  NET  REVENUE. 


employed  in  manufactures  and  trade,  yet  I  cannot  admit  that  there 
is  any  difference  in  the  quantity  of  labour  employed  by  a  capital 
engaged  in  the  home  trade,  and  an  equal  capital  engaged  in  the 
foreign  trade. 

“  The  capital  which  sends  Scotch  manufactures  to  London,  and 
brings  back  English  corn  and  manufactures  to  Edinburgh,”  says 
Adam  Smith,  “  necessarily  replaces,  by  every  such  operation,  two 
British  capitals  which  had  both  been  employed  in  the  agriculture  or 
manufactures  of  Great  Britain. 

“  The  capital  employed  in  purchasing  foreign  goods  for  home 
consumption,  when  this  purchase  is  made  with  the  produce  of 
domestic  industry,  replaces,  too,  by  every  such  operation,  two  dis¬ 
tinct  capitals ;  but  one  of  them  only  is  employed  in  supporting 
domestic  industry.  The  capital  which  sends  British  goods  to 
Portugal,  and  brings  back  Portuguese  goods  to  Great  Britain, 
replaces,  by  every  such  operation,  only  one  British  capital,  the 
other  is  a  Portuguese  one.  Though  the  returns,  therefore,  of  the 
foreign  trade  of  consumption  should  be  as  quick  as  the  home  trade, 
the  capital  employed  in  it  will  give  but  one  half  the  encouragement 
to  the  industry  or  productive  labour  of  the  country.” 

This  argument  appears  to  me  to  be  fallacious ;  for  though  two 
capitals,  one  Portuguese  and  one  English,  be  employed,  as  Dr 
Smith  supposes,  still  a  capital  will  be  employed  in  the  foreign 
trade,  double  of  what  would  be  employed  in  the  home  trade. 
Suppose  that  Scotland  employs  a  capital  of  a  thousand  pounds  in 
making  linen,  which  she  exchanges  for  the  produce  of  a  similar 
capital  employed  in  making  silks  in  England,  two  thousand  pounds 
and  a  proportional  quantity  of  labour  will  be  employed  by  the  two 
countries.  Suppose  now,  that  England  discovers,  that  she  can 
import  more  linen  from  Germany,  tor  the  silks  which  she  before 
exported  to  Scotland,  and  that  Scotland  discovers  that  she  can 
obtain  more  silks  from  France  in  return  for  her  linen,  than  she  before 
obtained  from  England, — will  not  England  and  Scotland  immedi¬ 
ately  cease  trading  with  each  other,  and  will  not  the  home  trade 
of  consumption  be  changed  for  a  foreign  trade  of  consumption  ? 
But  although  two  additional  capitals  will  enter  into  this  trade,  the 
capital  of  Germany  and  that  of  France,  will  not  the  same  amount  of 
Scotch  and  of  English  capital  continue  to  be  employed,  and  will  it 
not  give  motion  to  the  same  quantity  of  industry  as  when  it  was 
engaged  in  the  home  trade  ? 


CHAPTER  XXVII. 


ON  CURRENCY  AND  BANKS 

So  much  has  already  been  written  on  currency,  that  of  those  who 
give  their  attention  to  such  subjects,  none  but  the  prejudiced  are 
ignorant  of  its  true  principles.  I  shall,  therefore,  take  only  a  brief 
survey  of  some  of  the  general  laws  which  regulate  its  quantity  and 
value. 

Gold  and  silver,  like  all  other  commodities,  are  valuable  only  in  ^ 
proportion  to  the  quantity  of  labour  necessary  to  produce  them  and 
bring  them  to  market.  Gold  is  about  fifteen  times  dearer  than 
silver,  not  because  there  is  a  greater  demand  for  it,  nor  because  the 
supply  of  silver  is  fifteen  times  greater  than  that  of  gold,  but  solely 
because  fifteen  times  the  quantity  of  labour  is  necessary  to  procure 
a  given  quantity  of  it. 

The  quantity  of  money  that  can  be  employed  in  a  country  must  0 
depend  on  its  value  :  if  gold  alone  were  employed  for  the  circula¬ 
tion  of  commodities,  a  quantity  would  be  required,  one  fifteenth 
only  of  what  would  be  necessary,  if  silver  were  made  use  of  for  the 
same  purpose. 

A  circulation  can  never  be  so  abundant  as  to  overflow  ;  for  by  0 
diminishing  its  value,  in  the  same  proportion  you  will  increase  its 
quantity,  and  by  increasing  its  value,  diminish  its  quantity. 

While  the  State  coins  money,  and  charges  no  seignorage,  money 
will  be  of  the  same  value  as  any  other  piece  of  the  same  metal  of 
equal  weight  and  fineness  ;  but  if  the  State  charges  a  seignorage 
for  coinage,  the  coined  piece  of  money  will  generally  exceed  the  $ 
value  of  the  uncoined  piece  of  metal  by  the  whole  seignorage 
charged,  because  it  will  require  a  greater  quantity  of  labour,  or, 
which  is  the  same  thing,  the  value  of  the  produce  of  a  greater 
quantity  of  labour,  to  procure  it. 

While  the  State  alone  coins,  there  can  be  no  limit  to  this  charge 
of  seignorage  ;  for  by  limiting  the  quantity  of  coin,  it  can  be  raised  ° 
to  any  conceivable  value. 

It  is  on  this  principle  that  paper  money  circulates:  the  whole  charge 
for  paper  money  may  be  considered  as  seignorage.  Though  it  has 
no  intrinsic  value,  yet,  by  limiting  its  quantity,  its  value  in  exchange 


214 


ON  CURUKNCY  AND  BANKS. 


is  as  great  as  an  equal  denomination  of  coin,  or  of  bullion  in  that 
coin.  On  the  same  principle,  too,  namely,  by  a  limitation  of  its 
quantity,  a  debased  coin  would  circulate  at  the  value  it  should  bear, 
if  it  were  of  the  legal  weight  and  fineness,  and  not  at  the  value  of 
the  quantity  of  metal  which  it  actually  contained.  In  the  history 
of  the  British  coinage,  we  find,  accordingly,  that  the  currency  was 
never  depreciated  in  the  same  proportion  that  it  was  debased ;  the 
reason  of  which  was,  that  it  never  was  increased  in  quantity,  in 
proportion  to  its  diminished  intrinsic  value.* 

There  is  no  point  more  important  in  issuing  paper  money  than  to 
c  be  fully  impressed  with  the  effects  which  follow  from  the  principle 
of  limitation  of  quantity.  It  will  scarcely  be  believed  fifty  years 
hence,  that  bank  directors  and  ministers  gravely  contended  in  our 
times,  both  in  Parliament  and  before  committees  of  Parliament,  that 
the  issues  of  notes  by  the  Bank  of  England,  unchecked  by  any 
power  in  the  holders  of  such  notes  to  demand  in  exchange  either 
specie  or  bullion,  had  not,  nor  could  have,  any  effect  on  the  prices 
of  commodities,  bullion,  or  foreign  exchanges. 

After  the  establishment  of  banks,  the  State  has  not  the  sole 
e  power  of  coining  or  issuing  money.  The  currency  may  as  effec¬ 
tually  be  increased  by  paper  as  by  coin  ;  so  that  if  a  State  were  to 
debase  its  money,  and  limit  its  quantity,  it  could  not  support  its 
c  value,  because  the  banks  would  have  an  equal  power  of  adding  to 
the  whole  quantity  of  circulation. 

On  these  principles,  it  will  be  seen  that  it  is  not  necessary  that 
paper  money  should  be  payable  in  specie  to  secure  its  value  ;  it  is 
only  necessary  that  its  quantity  should  be  regulated  according  to 
0  the  value  of  the  metal  which  is  declared  to  be  the  standard.  If 
the  standard  were  gold  of  a  given  weight  and  fineness,  paper  might 
be  increased  with  every  fall  in  the  value  of  gold,  or,  which  is  the 
same  thing  in  its  effects,  with  every  rise  in  the  price  of  goods. 

u  By  issuing  too  great  a  quantity  of  paper,”  says  Dr  Smith,  “  of 
which  the  excess  was  continually  returning  in  order  to  be  exchanged 
for  gold  and  silver,  the  Bank  of  England  was,  for  many  years 
together,  obliged  to  coin  gold  to  the  extent  of  between  eight 
hundred  thousand  pounds  and  a  million  a  year,  or,  at  an  average, 
about  eight  hundred  and  fifty  thousand  pounds.  For  this  great 
coinage,  the  Bank,  in  consequence  of  the  worn  and  degraded  state 
into  which  the  gold  coin  had  fallen  a  few  years  ago,  was  frequently 
obliged  to  purchase  bullion  at  the  high  price  of  four  pounds  an 
ounce,  which  it  soon  after  issued  in  coin  at  SI.  17s.  l(Hd.  an  ounce, 
losing  in  this  manner  between  two  and  a  half  and  three  per  cent, 
upon  the  coinage  of  so  very  large  a  sum.  Though  the  bank,  there¬ 
fore,  paid  no  seignorage,  though  the  Government  was  properly  at 
the  expense  of  the  coinage,  this  liberality  of  Government  did  not 
prevent  altogether  the  expense  of  the  Bank.” 

*  Whatever  I  say  of  gold  coin,  is  equally  applicable  to  silver  coin ;  but  it  is  not 
necessary  to  mention  both  on  every  occasion. 


ON  CURRENCY  AND  BANKS. 


215 


On  the  principle  above  stated,  it  appears  to  me  most  elear,  that 
by  not  re-issuing  the  paper  thus  brought  in,  the  value  of  the  whole 
currency,  of  the  degraded  as  well  as  the  new  gold  coin,  would  have 
been  raised,  when  all  demands  on  the  Bank  would  have  ceased. 

Mr  Buchanan,  however,  is  not  of  this  opinion,  for  he  says  “  that 
the  great  expense  to  which  the  Bank  was  at  this  time  exposed  was 
occasioned,  not  as  Dr  Smith  seems  to  imagine,  by  an  imprudent 
issue  of  paper,  but  by  the  debased  state  of  the  currency,  and  the 
consequent  high  price  of  bullion.  The  Bank,  it  will  be  observed, 
having  no  other  way  of  procuring  guineas  but  by  sending  bullion 
to  the  Mint  to  be  coined,  was  always  forced  to  issue  new  coined 
guineas,  in  exchange  for  its  returned  notes ;  and  when  the  currency 
was  generally  deficient  in  weight,  and  the  price  of  bullion  high  in 
proportion,  it  became  profitable  to  draw  these  heavy  guineas  from 
the  Bank  in  exchange  for  its  paper ;  to  convert  them  into  bullion, 
and  to  sell  them  with  a  profit  for  Bank  paper,  to  be  again  returned 
to  the  Bank  for  a  new  supply  of  guineas,  which  were  again  melted 
and  sold.  To  this  drain  of  specie  the  Bank  must  always  be  exposed 
while  the  currency  is  deficient  in  weight,  as  both  an  easy  and  a 
certain  profit  then  arises  from  the  constant  interchange  of  paper  for 
specie.  It  may  be  remarked,  however,  that  to  whatever  incon¬ 
venience  and  expense  the  Bank  was  then  exposed  by  the  drain  of 
its  specie,  it  never  was  imagined  necessary  to  rescind  the  obligation 
to  pay  money  for  its  notes."’ 

Mr  Buchanan  evidently  thinks  that  the  whole  currency  must 
necessarily  be  brought  down  to  the  level  of  the  value  of  the  debased 
pieces  ;  but  surely,  by  a  diminution  of  the  quantity  of  the  currency, 
the  whole  that  remains  can  be  elevated  to  the  value  of  the  best 
pieces. 

Dr  Smith  appears  to  have  forgotten  his  own  principle  in  his 
argument  on  colony  currency.  Instead  of  ascribing  the  deprecia¬ 
tion  of  that  paper  to  its  too  great  abundance,  he  asks  whether, 
allowing  the  colony  security  to  be  perfectly  good,  a  hundred  pounds, 
payable  fifteen  years  hence,  ■would  be  equally  valuable  with  a 
hundred  pounds  to  be  paid  immediately  ?  I  answer  yes,  if  it  be 
not  too  abundant. 

Experience,  however,  shows  that  neither  a  State  nor  a  Bank  ever 
have  had  the  unrestricted  power  of  issuing  paper  money  without 
abusing  that  power :  in  all  States,  therefore,  the  issue  of  paper 
money  ought  to  be  under  some  check  and  control ;  and  none  seems 
so  proper  for  that  purpose  as  that  of  subjecting  the  issuers  of  pape 
money  to  the  obligation  of  paying  their  notes  either  in  gold  coin^ 
bullion.  to 

[“  To  secure  the  public*  against  any  other  variations  in  the  vaj 
of  currency  than  those'  to  which  the  standard  itself  is  subject,  an 

*  This,  and  the  following  paragraphs,  to  the  close  of  the  bracket,  p.  218,  is  extracted 
from  a  pamphlet  entitled  “Proposals  for  an  Economical  and  Secure  Currency,”  pub¬ 
lished  by  the  author  in  the  year  1816. 


2 1G 


ON  CUUllENCY  AND  BANKS. 


at  the  same  time,  to  carry  on  the  circulation  with  a  medium  the 
least  expensive,  is  to  attain  the  most  perfect  state  to  which  a  cur 
rency  can  be  brought,  and  we  should  possess  all  these  advantages 
by  subjecting  the  Bank  to  the  delivery  of  uncoined  gold  or  silver 
at  the  Mint  standard  and  price,  in  exchange  for  their  notes,  instead 
of  the  delivery  of  guineas ;  by  which  means  paper  would  never  fall 
below  the  value  of  bullion  without  being  followed  by  a  reduction 
of  its  quantity.  To  prevent  the  rise  of  paper  above  the  value  of 
bullion,  the  Bank  should  be  also  obliged  to  give  their  paper  in  ex¬ 
change  for  standard  gold  at  the  price  of  3/.  17s.  per  ounce.  Not 
to  give  too  much  trouble  to  the  Bank,  the  quantity  of  gold  to  be 
demanded  in  exchange  for  paper  at  the  Mint  price  of  31.  17s.  10^d., 
or  the  quantity  to  be  sold  to  the  Bank  at  31.  17s.,  should  never 
be  less  than  twenty  ounces.  In  other  words,  the  Bank  should  be 
obliged  to  purchase  any  quantity  of  gold  that  was  offered  them, 
not  less  than  twenty  ounces,  at  31.  17s.*  per  ounce,  and  to  sell 
any  quantity  that  might  be  demanded  at  31.  17s.  lOJd.  While 
they  have  the  power  of  regulating  the  quantity  of  their  paper,  there 
is  no  possible  inconvenience  that  could  result  to  them  from  such  a 
regulation. 

“  The  most  perfect  liberty  should  be  given,  at  the  same  time,  to 
export  or  import  every  description  of  bullion.  These  transactions 
in  bullion  would  be  very  few  in  number,  if  the  Bank  regulated  their 
loans  and  issues  of  paper  by  the  criterion  which  I  have  so  often 
mentioned,  namely,  the  price  of  standard  bullion,  without  attending 
to  the  absolute  quantity  of  paper  in  circulation. 

“  The  object  which  I  have  in  view  would  be  in  a  great  measure 
attained,  if  the  Bank  were  obliged  to  deliver  uncoined  bullion,  in  ' 
exchange  for  their  notes,  at  the  Mint  price  and  standard,  though 
they  were  not  under  the  necessity  of  purchasing  any  quantity  of 
bullion  offered  them  at  the  prices  to  be  fixed,  particularly  if  the 
Mint  were  to  continue  open  to  the  public  for  the  coinage  of  money; 
for  that  regulation  is  merely  suggested  to  prevent  the  value  of 
money  from  varying  from  the  value  of  bullion  more  than  the  trifling 
difference  between  the  prices  at  which  the  Bank  should  buy  and 
sell,  and  which  would  be  an  approximation  to  that  uniformity  in  its 
value,  which  is  acknowledged  to  be  so  desirable. 

“  If  the  Bank  capriciously  limited  the  quantity  of  their  paper, 
they  would  raise  its  value,  and  gold  might  appear  to  fall  below  the 
limits  at  which  I  propose  the  Bank  should  purchase.  Gold,  in  that 
ase,  might  be  carried  to  the  Mint,  and  the  money  returned  from 
mce,  being  added  to  the  circulation,  would  have  the  effect  of 

The  price  of  3l.  1 7s.  here  mentioned  is  of  course  an  arbitrary  price.  There  might 
'Od  reason,  perhaps,  for  fixing  it  either  a  little  above  or  a  little  below.  In  naming 
-7s.,  I  wish  only  to  elucidate  the  principle.  The  price  ought  to  be  so  fixed  as  to 
make  it  the  interest  of  the  seller  of  gold  rather  to  sell  it  to  the  Bank  than  to  carry  it 
to  the  Mint  to  be  coined. 

The  same  remark  applies  to  the  specified  quantity  of  twenty  ounces.  There  might 
be  good  reason  for  making  it  ten  or  thirty. 


ON  CURRENCY  AND  BANKS. 


217 


lowering  its  value,  and  making  it  again  conform  to  the  standard ; 
but  it  would  neither  be  done  so  safely,  so  economically,  nor  so 
expeditiously  as  by  the  means  which  I  have  proposed,  against  which 
the  Bank  can  have  no  objection  to  offer,  as  it  is  for  their  interest  to 
furnish  the  circulation  with  paper  rather  than  oblige  others  to 
furnish  it  with  coin 

u  Under  such  a  system,  and  with  a  currency  so  regulated,  the 
Bank  would  never  be  liable  to  any  embarrassments  whatever, 
excepting  on  those  extraordinary  occasions  when  a  general  panic 
seizes  the  country,  and  when  every  one  is  desirous  of  possessing 
the  precious  metals  as  the  most  convenient  mode  of  realizing  or 
concealing  his  property.  Against  such  panics  Banks  have  no 
security  on  any  system;  from  their  very  nature  they  are  subject  to 
them,  as  at  no  time  can  there  be  in  a  Bank,  or  in  a  country,  so  much 
specie  or  bullion  as  the  monied  individuals  of  such  country  have 
a  right  to  demand.  Should  every  man  withdraw  his  balance  from 
his  banker  on  the  same  day,  many  times  the  quantity  of  Bank 
notes  now  in  circulation  would  be  insufficient  to  answer  such  a 
demand.  A  panic  of  this  kind  was  the  cause  of  the  crisis  in  1797  ; 
and  not,  as  has  been  supposed,  the  large  advances  which  the  Bank 
had  then  made  to  Government.  Neither  the  Bank  nor  Government 
were  at  that  time  to  blame  ;  it  was  the  contagion  of  the  unfounded 
fears  of  the  timid  part  of  the  community  which  occasioned  the  run 
on  the  Bank,  and  it  would  equally  have  taken  place  if  they  had  not 
made  any  advances  to  Government,  and  had  possessed  twice  their 
present  capital.  If  the  Bank  had  continued  paying  in  cash,  pro¬ 
bably  the  panic  would  have  subsided  before  their  coin  had  been 
exhausted. 

11  With  the  known  opinion  of  the  Bank  directors  as  to  the  rule 
for  issuing  paper  money,  they  may  be  said  to  have  exercised  their 
powers  without  any  great  indiscretion.  It  is  evident  that  they 
have  followed  their  own  principle  with  extreme  caution.  In  the 
present  state  of  the  law,  they  have  the  power,  without  any  control 
whatever,  of  increasing  or  reducing  the  circulation  in  any  degree 
they  may  think  proper ;  a  power  which  should  neither  be  intrusted 
to  the  State  itself,  nor  to  anybody  in  it,  as  there  can  be  no  security 
for  the  uniformity  in  the  value  of  the  currency,  when  its  augmen¬ 
tation  or  diminution  depends  solely  on  the  will  of  the  issuers. 
That  the  Bank  have  the  power  of  reducing  the  circulation  to  the 
very  narrowest  limits,  will  not  be  denied,  even  by  those  who  agree 
in  opinion  with  the  directors,  that  they  have  not  the  power  of 
adding  indefinitely  to  its  quantity.  Though  I  am  fully  assured, 
that  it  is  both  against  the  interest  and  the  wish  of  the  Bank  to 
exercise  this  power  to  the  detriment  of  the  public,  yet,  when  I 
contemplate  the  evil  consequences  which  might  ensue  from  a  sudden 
and  great  reduction  of  the  circulation,  as  well  as  from  a  great 
addition  to  it,  I  cannot  but  deprecate  the  facility  with  which  the 
State  has  armed  the  Bank  with  so  formidable  a  prerogative. 


218 


ON  CURRENCY  AND  BANKS. 


“  The  inconvenience  to  which  country  banks  were  subjected 
before  the  restriction  on  cash  payments,  must  at  times  have  been 
very  great.  At  all  periods  of  alarm,  or  of  expected  alarm,  they  must 
have  been  under  the  necessity  of  providing  themselves  with  guineas, 
that  they  might  be  prepared  for  evei’y  exigency  which  might  occur. 
Guineas,  on  these  occasions,  were  obtained  at  the  Bank  in  exchange 
for  the  larger  notes,  and  were  conveyed  by  some  confidential  agent, 
at  expense  and  risk,  to  the  country  bank.  After  performing  the 
offices  to  which  they  were  destined,  they  found  their  way  again  to 
London,  and  in  all  probability  were  again  lodged  in  the  Bank, 
provided  they  had  not  suffered  such  a  loss  of  weight  as  to  reduce 
them  below  the  legal  standard. 

“  If  the  plan  now  proposed  of  paying  Bank  notes  in  bullion  be 
adopted,  it  would  be  necessary  either  to  extend  the  same  privilege 
to  country  banks,  or  to  make  Bank  notes  a  legal  tender,  in  which 
latter  case  there  would  be  no  alteration  in  the  law  respecting 
country  banks,  as  they  would  be  required,  precisely  as  they  now 
are,  to  pay  their  notes  when  demanded  in  Bank  of  England  notes. 

“  The  saving  which  would  take  place  from  not  submitting  the 
guineas’  to  the  loss  of  weight  from  the  friction  which  they  must 
undergo  in  their  repeated  journeys,  as  well  as  of  the  expenses  of 
conveyance,  would  be  considerable  ;  but  by  far  the  greatest  advan¬ 
tage  would  result  from  the  permanent  supply  of  the  country  as  well 
as  of  the  London  circulation,  as  far  as. the  smaller  payments  are 
concerned,  being  provided  in  the  very  cheap  medium,  paper,  instead 
of  the  very  valuable  medium,  gold ;  thereby  enabling  the  country 
to  derive  all  the  profit  which  may  be  obtained  by  the  productive 
employment  of  a  capital  to  that  amount.  We  should  surely  not  be 
justified  in  rejecting  so  decided  a  benefit  unless  some  specific  incon¬ 
venience  could  be  pointed  out  as  likely  to  follow  from  adopting  the 
cheaper  medium.”] 

A  currency  is  in  its  most  perfect  state  when  it  consists  wholly  of 
paper  money,  but  of  paper  money  of  an  equal  value  with  the  gold 
which  it  professes  to  represent.  The  use  of  paper  instead  of  gold 
substitutes  the  cheapest  in  place  of  the  most  expensive  medium, 
and  enables  the  country,  without  loss  to  any  individual,  to  exchange 
all  the  gold  which  it  before  used  for  this  purpose  for  raw  materials, 
utensils,  and  food ;  by  the  use  of  which,  both  its  wealth  and  its 
enjoyments  are  increased. 

In  a  national  point  of  view,  it  is  of  no  importance  whether  the 
issuers  of  this  well  regulated  paper  money  be  the  Government  or  a 
Bank,  it  will,  on  the  whole,  be  equally  productive  of  riches  whether 
it  be  issued  by  one  or  by  the  other ;  but  it  is  not  so  with  respect  to 
the  interest  of  individuals.  In  a  country  where  the  market  rate  of 
interest  is  7  per  cent.,  and  where  the  State  requires  for  a  particular 
expense  70,000/.  per  annum,  it  is  a  question  of  importance  to  the 
individuals  of  that  country  whether  they  must  be  taxed  to  pay  this 
70,000/.  per  annum,  or  whether  they  could  raise  it  without  taxes. 


OX  CURRENCY  AND  RANKS. 


219 


Suppose  that  a  million  of  money  should  be  required  to  fit  out  an 
expedition.  If  the  State  issued  a  million  of  paper  and  displaced  a 
million  of  coin,  the  expedition  would  be  fitted  out  w  ithout  any 
charge  to  the  people  ;  but  if  a  Bank  issued  a  million  of  paper,  and 
lent  it  to  Government  at  7  per  cent.,  thereby  displacing  a  million 
of  coin,  the  country  would  be  charged  with  a  continual  tax  of 
70,000/.  per  annum  :  the  people  woidd  pay  the  tax,  the  Bank  would 
receive  it,  and  the  society  would  in  either  case  be  as  wealthy  as 
before ;  the  expedition  would  have  been  really  fitted  out  by  the 
improvement  of  our  system,  by  rendering  capital  of  the  value  of  a 
million  productive  in  the  form  of  commodities  instead  of  letting  it 
remain  unproductive  in  the  form  of  coin ;  but  the  advantage  would 
always  be  in  favour  of  the  issuers  of  paper ;  and  as  the  State  repre¬ 
sents  the  people,  the  people  would  have  saved  the  tax  if  they,  and 
not  the  Bank,  had  issued  this  million. 

I  have  already  observed,  that  if  there  were  perfect  security  that 
the  power  of  issuing  paper  money  would  not  be  abused,  it  would 
be  of  no  importance  with  respect  to  the  riches  of  the  country  collec¬ 
tively,  by  whom  it  was  issued ;  and  I  have  now  shown  that  the 
public  would  have  a  direct  interest  that  the  issuers  should  be  the 
State,  and  not  a  company  of  merchants  or  bankers.  'The  danger, 
however,  is,  that  this  power  would  be  more  likely  to  be  abused,  if 
in  the  hands  of  Government,  than  if  in  the  hands  of  a  banking 
company.  A  company  would,  it  is  said,  be  more  under  the  control 
of  law,  and  although  it  might  be  their  interest  to  extend  their  issues 
beyond  the  bounds  of  discretion,  they  would  be  limited  and  checked 
by  the  power  which  individuals  would  have  of  calling  for  bullion  or 
specie.  It  is  argued  that  the  same  check  would  not  be  long  re¬ 
spected,  if  Government  had  the  privilege  of  issuing  money  ;  that 
they  would  be  too  apt  to  consider  present  convenience,  rather  than 
future  security,  and  might,  therefore,  on  the  alleged  grounds,  of 
expediency,  be  too  much  inclined  to  remove  the  checks,  by  which 
the  amount  of  their  issues  was  controlled. 

Under  an  arbitrary  Government,  this  objection  would  have  great 
force ;  but  in  a  free  country,  with  an  enlightened  legislature,  the 
power  of  issuing  paper  money,  under  the  requisite  checks  of  con¬ 
vertibility  at  the  will  of  the  holder,  might  be  safely  lodged  in  the 
hands  of  commissioners  appointed  for  that  special  purpose,  and  they 
might  be  made  totally  independent  of  the  control  of  ministers. 

The  sinking  fund  is  managed  by  commissioners,  responsible  only 
to  parliament,  and  the  investment  of  the  money  entrusted  to  their 
charge  proceeds  with  the  utmost  regularity ;  what  reason  can  there 
be  to  doubt  that  the  issues  of  paper  money  might  be  regulated 
with  equal  fidelity,  if  placed  under  similar  management  ? 

It  may  be  said,  that  although  the  advantage  accruing  to  the  State, 
and,  therefore,  to  the;'  public,  from  issuing  paper  money,  is  suffi¬ 
ciently  manifest,  as  it  would  exchange  a  portion  of  the  national 
debt,  on  which  interest  is  paid  by  the  public,  into  a  debt  bearing 


220 


ON  CURRENCY  AND  BANKS. 


no  interest :  yet  it  would  be  disadvantageous  to  commerce,  as  it 
would  preclude  the  merchants  from  borrowing  money,  and  getting 
their  bills  discounted,  the  method  in  which  Bank  paper  is  partly 
issued. 

This,  however,  is  to  suppose  that  money  could  not  be  borrowed, 
if  the  Bank  did  not  lend  it,  and  that  the  market  rate  of  interest  and 
profit  depends  on  the  amount  of  the  issues  of  money,  and  on  the 
channel  through  which  it  is  issued  But  as  a  country  would  have 
no  deficiency  of  cloth,  of  wine,  or  any  other  commodity,  if  they  had 
the  means  of  paying  for  it,  in  the  same  manner  neither  would  there 
be  any  deficiency  of  money  to  be  lent,  if  the  borrowers  offered  good 
security,  and  were  willing  to  pay  the  market  rate  of  interest  for  it. 

In  another  part  of  this  work,  I  have  endeavoured  to  show,  that 
the  real  value  of  a  commodity  is  regulated,  not  by  the  accidental 
advantages  which  may  be  enjoyed  by  some  of  its  producers,  but  by 
the  real  difficulties  encountered  by  that  producer  who  is  least 
favoured.  It  is  so  with  respect  to  the  interest  for  money  ;  it  is  not 
regulated  by  the  rate  at  which  the  Bank  will  lend,  whether  it  be  5, 
4,  or  3  per  cent.,  but  by  the  rate  of  profits  which  can  be  made  by 
the  employment  of  capital,  and  which  is  totally  independent  of  the 
quantity,  or  of  the  value  of  money.  Whether  a  Bank  lent  one 
million,  ten  million,  or  a  hundred  millions,  they  would  not  per¬ 
manently  alter  the  market  rate  of  interest ;  they  would  alter  only 
the  value  of  the  money  which  they  thus  issued.  In  one  case,  ten 
or  twenty  times  more  money  might  be  required  to  carry  on  the 
same  business,  than  what  might  be  required  in  the  other.  The 
applications  to  the  Bank  for  money,  then,  depend  on  the  comparison 
between  the  rate  of  profits  that  may  be  made  by  the  employment 
of  it,  and  the  rate  at  which  they  are  willing  to  lend  it.  If  they 
charge  less  than  the  market  rate  of  interest,  there  is  no  amount  of 
money  which  they  might  not  lend, — if  they  charge  more  than  that 
rate,  none  but  spendthrifts  and  prodigals  would  be  found  to  borrow 
of  them.  We  accordingly  find,  that  when  the  market  rate  of 
interest  exceeds  the  rate  of  5  per  cent,  at  which  the  Bank  uniformly 
lend,  the  discount  office  is  besieged  with  applicants  for  money;  and, 
on  the  contrary,  when  the  market  rate  is  even  temporarily  under 
5  per  cent.,  the  clerks  of  that  office  have  no  employment. 

The  reason,  then,  why  for  the  last  twenty  years  the  Bank  is  said 
to  have  given  so  much  aid  to  commerce,  by  assisting  the  merchants 
with  money,  is  because  they  have,  during  that  whole  period,  lent 
money  below  the  market  rate  of  interest ;  below  that  rate  at  which 
the  merchants  could  have  borrowed  elsewhere ;  but  I  confess  that 
to  me  this  seems  rather  an  objection  to  their  establishment  than  an 
argument  in  favour  of  fit. 

What  should  we  say  of  an  establishment  which  should  regularly 
supply  half  the  clothiers  with  wool  under  the  market  price  ?  Of 
what  benefit  would  it  be  to  the  community  ?  It  would  not  extend 
our  trade,  because  the  wool  would  equally  have  been  bought  if  they 


OX  CURRENCY  AND  BANKS. 


221 


had  charged  the  market  price  for  it.  It  would  not  lower  the  price 
of  cloth  to  the  consumer,  because  the  price,  as  I  have  said  before, 
would  be  regulated  by  the  cost  of  its  production  to  those  who  were 
the  least  favoured.  Its  sole  effect,  then,  would  be  to  swell  the 
profits  of  a  part  of  the  clothiers  beyond  the  general  and  common 
rate  of  profits.  The  establishment  would  be  deprived  of  its  fair 
profits,  and  another  part  of  the  community  would  be  in  the  same 
degree  benefited.  Now,  this  is  precisely  the  effect  of  our  banking 
establishments  ;  a  rate  of  interest  is  fixed  by  the  law  below  that  at 
which  it  can  be  borrowed  in  the  market,  and  at  this  rate  the  Bank 
are  required  to  lend,  or  not  to  lend  at  all.  From  the  nature  of 
their  establishment,  they  have  large  funds  which  they  can  only 
dispose  of  in  this  way ;  and  a  part  of  the  traders  of  the  country 
are  unfairly,  and,  for  the  country,  unprofitably  benefited,  by  being- 
enabled  to  supply  themselves  with  an  instrument  of  trade,  at  a 
less  charge  than  those  who  must  be  influenced  only  by  a  market 
price. 

The  whole  business  which  the  whole  community  can  carry  on 
depends  on  the  quantity  of  its  capital,  that  is,  of  its  raw  material, 
machinery,  food,  vessels,  &c.,  employed  in  production.  After  a 
well  regulated  paper  money  is  established,  these  can  neither  be 
increased  nor  diminished  by  the  operations  of  banking.  If,  then, 
the  State  were  to  issue  the  paper  money  of  the  country,  although 
it  should  never  discount  a  bill,  or  lend  one  shilling  to  the  public, 
there  would  be  no  alteration  in  the  amount  of  trade ;  for  we  should 
have  the  same  quantity  of  raw  materials,  of  machinery,  food,  and 
ships ;  and  it  is  probable,  too,  that  the  same  amount  of  money 
might  be  lent,  not  always  at  5  per  cent.,  indeed,  a  rate  fixed  by 
law,  when  that  might  be  under  the  market  rate,  but  at  6,  7,  or  8 
per  cent.,  the  result  of  the  fair  competition  in  the  market  between 
tne  lenders  and  the  borrowers. 

Adam  Smith  speaks  of  the  advantages  derived  by  merchants 
from  the  superiority  of  the  Scotch  mode  of  affording  accommodation 
to  trade,  over  the  English  mode,  by  means  of  cash  accounts. 
These  cash  accounts  are  credits  given  by  the  Scotch  banker  to  his 
customers,  in  addition  to  the  bills  which  he  discounts  for  them ; 
but,  as  the  banker,  in  proportion  as  he  advances  money  and  sends 
it  into  circulation  in  one  way,  is  debarred  from  issuing  so  much  in 
the  other,  it  is  difficult  to  perceive  in  what  the  advantage  consists. 
If  the  whole  circulation  will  bear  only  one  million  of  paper,  one 
million  only  will  be  circulated  :  and  it  can  be  of  no  real  importance 
cither  to  the  banker  or  merchant,  whether  the  whole  be  issued  in 
discounting  bills,  or  a  part  be  so  issued,  and  the  remainder  be  issued 
by  means  of  these  cash  accounts. 

It  may  perhaps  be  necessary  to  say  a  few  words  on  the  subject 
of  the  two  metals,  gold  and  silver,  which  are  employed  in  currency, 
particularly  as  this  question  appears  to  perplex,  in  many  ]  eople’s 
minds,  the  plain  and  simple  principles  of  currency.  “In  England,” 


222 


ON  CURRENCY  AND  BANKS. 


says  Dr  Smith,  “gold  was  not  considered  as  a  legal  tender  fora 
long  time  after  it  was  coined  into  money.  The  proportion  between 
the  values  of  gold  and  silver  money  was  not  fixed  by  any  public 
law  or  proclamation,  but  was  left  to  be  settled  by  the  market.  II 
a  debtor  offered  payment  in  gold,  the  creditor  might  either  reject 
such  payment  altogether,  or  accept  of  it  at  such  a  valuation  of  the 
gold  as  he  and  Iris  debtor  could  agree  upon.” 

In  this  state  of  things  it  is  evident  that  a  guinea  might  some¬ 
times  pass  for  22s.  or  more,  and  sometimes  for  18s.  or  less,  depending 
entirely  on  the  alteration  in  the  relative  market  value  of  gold  and 
silver.  All  the  variations,  too,  in  the  value  of  gold,  as  well  as  in 
the  value  of  silver,  would  be  rated  in  the  gold  coin, — it  would 
appear  as  if  silver  was  invariable,  and  as  if  gold  only  was  subject  to 
rise  and  fall.  Thus,  although  a  guinea  passed  for  22s.  instead  ol 
18s.,  gold  might  not  have  varied  in  value ;  the  variation  might  have 
been  wholly  confined  to  the  silver,  and  therefore  22s.  might  have 
been  of  no  more  value  than  18s.  were  before.  And,  on  the  contrary, 
the  whole  variation  might  have  been  in  the  gold ;  a  guinea  which 
was  worth  18s.  might  have  risen  to  the  value  of  22s. 

If,  now,  we  suppose  this  silver  currency  to  be  debased  by  clipping, 
and  also  increased  in  quantity,  a  guinea  might  pass  for  30s.  ;  for 
the  silver  in  30s.  of  such  debased  money  might  be  of  no  more  value 
than  the  gold  in  one  guinea.  By  restoring  the  silver  currency  to 
its  Mint  value,  silver  money  would  rise ;  but  it  would  appear  as  if 
gold  fell,  for  a  guinea  would  probably  be  of  no  more  value  than  21 
of  such  good  shillings. 

If  now  gold  be  also  made  a  legal  tender,  and  every  debtor  be  at 
liberty  to  discharge  a  debt  by  the  payment  of  420  shillings,  or 
twenty  guineas  for  every  21/.  that  .he  owes,  he  will  pay  in  one  or 
the  other  according  as  he  can  most  cheaply  discharge  his  debt.  If 
with  five  quarters  of  wheat  he  can  procure  as  much  gold  bullion  as 
the  Mint  will  coin  into  twenty  guineas,  and  for  the  same  wheat  as 
much  silver  bullion  as  the  Mint  will  coin  for  him  into  430  shillings, 
he  will  prefer  paying  in  silver,  because  he  would  be  a  gainer  of  ten 
shillings  by  so  paying  his  debt.  But  if,  on  the  contrary,  he  could 
obtain  with  this  wheat  as  much  gold  as  would  be  coined  into  twenty 
guineas  and  a  half,  and  as  much  silver  only  as  would  coin  into  420 
shillings,  he  would  naturally  prefer  paying  his  debt  in  gold.  If  the 
quantity  of  gold  which  he  could  procure  could  be  coined  only  into 
twenty  guineas,  and  the  quantity  of  silver  into  420  shillings,  it 
would  be  a  matter  of  perfect  indifference  to  him  in  which  money, 
silver  or  gold,  it  was  that  he  paid  his  debt.  It  is  not,  then,  a  matter 
of  chance ;  it  is  not  because  gold  is  better  fitted  for  carrying  on  the 
circulation  of  a  rich  country,  that  gold  is  ever  preferred  for  the  pur¬ 
pose  of  paying  debts,  but  simply  because  it  is  the  interest  of  the 
debtor  so  to  pay  them. 

During  a  long  period  previous  to  1797,  the  year  of  the  restric¬ 
tion  on  the  Bank  payments  in  coin,  gold  was  so  cheap,  compared 


ON  CURRENCY  AND  BANKS.  223 

with  silver,  that  it  suited  the  Bank  of  England,  and  all  other 
debtors,  to  purchase  gold  in  the  market,  and  not  silver,  for  the 
purpose  of  carrying  it  to  the  Mint  to  be  coined,  as  they  could  in 
that  coined  metal  more  cheaply  discharge  their  debts.  The  silver 
currency  was,  during  a  great  part  of  this  period,  very  much  debased : 
but  it  existed  in  a  degree  of  scarcity,  and  therefore,  on  the  principle 
which  I  have  before  explained,  it  never  sunk  in  its  current  value. 
Though  so  debased,  it  was  still  the  interest  of  debtors  to  pay  in  the 
gold  coin.  If,  indeed,  the  quantity  of  this  debased  silver  coin  had 
been  enormously  great,  or  if  the  Mint  had  issued  such  debased 
pieces,  it  might  have  been  the  interest  of  debtors  to  pay  in  this 
debased  money ;  but  its  quantity  was  limited,  and  it  sustained  its 
value,  and,  therefore,  gold  was  in  practice  the  real  standard  of 
currency. 

That  it  was  so,  is  nowhere  denied ;  but  it  has  been  contended, 
that  it  was  made  so  by  the  law,  which  declared  that  silver  should 
not  be  a  legal  tender  for  any  debt  exceeding  25 1.,  unless  by  weight, 
according  to  the  Mint  standard. 

But  this  law  did  not  prevent  any  debtor  from  paying  his  debt, 
however  large  its  amount,  in  silver  currency  fresh  from  the  Mint ; 
that  the  debtor  did  not  pay  in  this  metal  was  not  a  matter  of  chance 
nor  a  matter  of  compulsion,  but  wholly  the  effect  of  choice  ;  it  did 
not  suit  him  to  take  silver  to  the  Mint,  it  did  suit  him  to  take  gold 
thither.  It  is  probable,  that  if  the  quantity  of  this  debased  silver 
in  circulation  had  been  enormously  great,  and  also  a  legal  tender, 
that  a  guinea  would  have  been  again  worth  thirty  shillings  ;  but  it 
would  have  been  the  debased  shilling  that  would  have  fallen  in 
value,  and  not  the  guinea  that  had  risen. 

It  appears,  then,  that  whilst  each  of  the  two  metals  was  equally 
a  legal  tender  for  debts  of  any  amount,  we  were  subject  to  a  con¬ 
stant  change  in  the  principal  standard  measure  of  value.  It  would 
sometimes  be  gold,  sometimes  silver,  depending  entirely  on  the 
variations  in  the  relative  value  of  the  two  metals  ;  and  at  such  times 
the  metal,  which  was  not  the  standard,  would  be  melted  and  with¬ 
drawn  from  circulation,  as  its  value  woidd  be  greater  in  bullion 
than  in  coin.  This  was  an  inconvenience  which  it  was  highly 
desirable  should  be  remedied  ;  but  so  slow  is  the  progress  of 
improvement,  that  although  it  had  been  unanswerably  demonstrated 
by  Mr  Locke,  and  had  been  noticed  by  all  writers  on  the  subject  of 
money  since  his  day,  a  better  system  was  never  adopted  till  the 
session  of  Parliament  1816,  when  it  was  enacted  that  gold  only 
should  be  a  legal  tender  for  any  sum  exceeding  forty  shillings. 

Dr  Smith  does  not  appear  to  have  been  quite  aware  of  the  effect 
of  employing  two  metals  as  currency,  and  both  a  legal  tender  for 
debts  of  any  amount ;  for  he  says,  that  “  in  reality,  during  the 
continuance  of  any  one  regulated  proportion  between  the  respective 
values  of  the  different  metals  in  coin,  the  value  of  the  most  precious 
metal  regulates  the  value  of  the  whole  coin.”  Because  gold  was  in 


224 


ON  CURRENCY  AND  BANKS. 


his  day  the  medium  in  which  it  suited  debtors  to  pay  their  debts,  he 
thought  that  it  had  some  inherent  quality  by  which  it  did  then,  and 
always  would,  regulate  the  value  of  silver  coin. 

On  the  reformation  of  the  gold  coin  in  1774,  a  new  guinea  fresh 
from  the  Mint  would  exchange  for  only  twenty-one  debased  shillings; 
but  in  the  reign  of  King  William,  when  the  silver  coin  was  in 
precisely  the  same  condition,  a  guinea  also  new  and  fresh  from  the 
Mint  would  exchange  for  thirty  shillings.  On  this  Mr  Buchanan 
observes,  “  here,  then,  is  a  most  singular  fact,  of  which  the  common 
theories  of  currency  offer  no  account ;  the  guinea  exchanging  at 
one  time  for  thirty  shillings,  its  intrinsic  worth  in  a  debased  silver 
currency,  and  afterwards  the  same  guinea  exchanged  for  only 
twenty-one  of  those  debased  shillings.  It  is  clear  that  some  great 
change  must  have  intervened  in  the  state  of  the  currency  between 
these  two  different  periods,  of  which  Dr  Smith’s  hypothesis  offers 
no  explanation.’’ 

It  appears  to  me  that  the  difficulty  may  be  very  simply  solved 
by  referring  this  different  state  of  the  value  of  the  guinea  at  the  two 
periods  mentioned  to  the  different  quantities  of  debased  silver  cur¬ 
rency  in  circulation.  In  King  William’s  reign  gold  was  not  a  legal 
tender  ;  it  passed  only  at  a  conventional  value.  All  the  large 
payments  were  probably  made  in  silver,  particularly  as  paper 
currency  and  the  operations  of  banking  were  then  little  understood. 
The  quantity  of  this  debased  silver  money  exceeded  the  quantity 
of  silver  money  which  would  have  been  maintained  in  circulation  if 
nothing  but  undebased  money  had  been  in  use ;  and,  consequently, 
ii  was  depreciated  as  well  as  debased.  But  in  the  succeeding  period, 
wnen  gold  was  a  legal  tender,  when  Bank  notes  also  were  used  in 
eiiecting  payments,  the  quantity  of  debased  silver  money  did  not 
exceed  the  quantity  of  silver  coin  fresh  from  the  mint  which  would 
have  circulated  if  there  had  been  no  debased  silver  money ;  hence, 
though  the  money  was  debased  it  was  not  depreciated.  Mr 
Bucnanan’s  explanation  is  somewhat  different ;  he  thinks  that  a 
suosidiary  currency  is  not  liable  to  depreciation,  but  that  the  main 
currency  is.  In  King  William  s  reign  silver  was  the  main  currency, 
ana  hence  was  liable  to  depreciation.  In  1774  it  was  a  subsidiary 
currency,  and,  therefore,  maintained  its  value.  Depreciation,  how¬ 
ever.  does  not  depend  on  a  currency  being  the  subsidiary  or  the 
mam  currency,  it  depends  wholly  on  its  being  in  excess  of 
quantity.* 

*  It  has  lately  been  contended  in  Parliament  by  Lord  Lauderdale,  that,  with  the 
existing  Mint  regulation,  the  Bank  could  not  pay  their  notes  in  specie,  because  the 
relative  value  of  the  two  metals  is  such,  that  it  would  be  for  the  interest  of  all  debtors 
to  pay  their  debts  with  silver  and  not  with  gold  coin,  while  the  law  gives  a  power  to 
all  the  creditors  of  the  Bank  to  demand  gold  in  exchange  for  Bank  notes.  This  gold, 
his  Lordship  thinks,  could  be  profitably  exported,  and  if  so,  he  contends  that  the  Bank, 
to  keep  a  supply,  will  he  obliged  to  buy  gold  constantly  at  a  premium  and  sell  it  at 
par.  If  every  other  debtor  could  pay  in  silver,  Lord  Lauderdale  would  he  right ;  but 
he  cannot  do  so  if  his  debt  exceed  40s.  This,  then,  would  limit  the  amount  of  silver 
coin  in  circulation  (if  Government  had  not  reserved  to  itself  the  power  to  stop  the 


ON  CURRENCY  AND  BANKS. 


225 


To  a  moderate  seignorage  on  the  coinage  of  money  there  cannot 
he  much  objection,  particularly  on  that  currency  which  is  to  effect 
the  smaller  payments.  Money  is  generally  enhanced  in  value  to 
the  full  amount  of  the  seignorage,  and,  therefore,  it  is  a  tax  which 
in  no  way  affects  those  who  pay  it,  while  the  quantity  of  money  is 
not  in  excess.  It  must,  however,  be  remarked,  that  in  a  country 
where  a  paper  currency  is  established,  although  the  issuers  of  such 
paper  should  be  liable  to  pay  it  in  specie  on  the  demand  of  the 
holder,  still,  both  their  notes  and  the  coin  might  be  depreciated  to 
the  full  amount  of  the  seignorage  on  that  coin,  which  is  alone  the 
legal  tender,  before  the  check,  which  limits  the  circulation  of  paper, 
would  operate.  If  the  seignorage  of  gold  coin  were  5  per  cent,  for 
instance,  the  currency,  by  an  abundant  issue  of  Bank  notes,  might 
be  really  depreciated  5  per  cent,  before  it  would  be  the  interest  of 
the  holders  to  demand  coin  for  the  purpose  of  melting  it  into 
bullion  ;  a  depreciation  to  which  we  should  never  be  exposed,  if 
either  there  was  no  seignorage  on  the  gold  coin  :  or,  if  a  seignorage 
were  allowed,  the  holders  of  Bank  notes  might  demand  bullion, 
and  not  coin,  in  exchange  for  them,  at  the  Mint  price  of  3/.  17s.  10^d. 
Unless,  then,  the  Bank  should  be  obliged  to  pay  their  notes  in 
bullion  or  coin,  at  the  will  of  the  holder,  the  late  law  which  allows 
a  seignorage  of  fi  per  cent.,  or  fourpence  per  oz.,  on  the  silver  coin, 
but  which  directs  that  gold  shall  be  coined  by  the  Mint  without 
any  charge  whatever,  is  perhaps  the  most  proper,  as  it  will  most 
effectually  prevent  any  unnecessary  variation  of  the  currency. 

coinage  of  that  metal  whenever  they  might  think  it  expedient);  because  if  too  much 
silver  were  coined  it  would  sink  in  relative  value  to  gold,  and  no  man  would  accept  it 
in  payment  for  a  debt  exceeding  40s.,  unless  a  compensation  were  made  for  its  lower 
value.  To  pay  a  debt  of  100/.,  100  sovereigns,  or  bank  notes  to  the  amount  of  100/., 
would  be  necessary,  but  105/.  in  silver  coin  might  be  required,  if  there  were  too  much 
silver  in  circulation.  There  are,  then,  two  checks  against  an  excessive  quantity  of  silver 
coin  ;  first,  the  direct  check  which  Government  may  at  any  time  interpose  to  prevent 
more  from  being  coined :  secondly,  no  motive  of  interest  would  lead  any  one  to  take 
silver  to  the  Mint,  if  he  might  do  so,  for  if  it  were  coined,  it  would  not  pass  current  at 
its  Mint  but  only  at  its  market  value. 


;p 


[  226  J 


CHAPTER  XXVIII. 


ON  THE  COMPARATIVE  VALUE  OF  GOLD,  CORN,  AND 
LABOUR  IN  RICH  AND  POOR  COUNTRIES. 

“  Gold  and  silver,  like  all  other  commodities,”  says  Adam  Smith, 
u  naturally  seek  the  market  where  the  best  price  is  given  for  them ; 
and  the  best  price  is  commonly  given  for  every  thing  in  the  country 
which  can  best  afford  it.  Labour,  it  must  be  remembered,  is  the 
ultimate  price  which  is  paid  for  every  thing ;  and  in  countries 
where  labour  is  equally  well  rewarded,  the  money  price  of  labour 
will  be  in  proportion  to  that  of  the  subsistence  of  the  labourer. 
But  gold  and  silver  will  naturally  exchange  for  a  greater  quantity 
of  subsistence  in  a  rich  than  in  a  poor  country  ;  in  a  country  which 
abounds  with  subsistence,  than  in  one  which  is  but  indifferently 
supplied  with  it.” 

But  corn  is  a  commodity,  as  well  as  gold,  silver,  and  other  things  ; 
if  all  commodities,  therefore,  have  a  high  exchangeable  value  in  a 
rich  country,  corn  must  not  be  excepted  ;  and  hence  we  might 
correctly  say,  that  corn  exchanged  for  a  great  deal  of  money,  because 
it  was  dear,  and  that  money,  too,  exchanged  for  a  great  deal  of 
corn,  because  that  also  was  dear;  which  is  to  assert  that  corn  is 
dear  and  cheap  at  the  same  time.  No  point  in  political  economy 
can  be  better  established,  than  that  a  rich  country  is  prevented 
from  increasing  in  population,  in  the  same  ratio  as  a  poor  coimtry, 
by  the  progressive  difficulty  of  providing  food.  That  difficulty 
must  necessarily  raise  the  relative  price  of  food,  and  give  encourage¬ 
ment  to  its  importation.  How  then  can  money,  or  gold  and  silver, 
exchange  for  more  corn  in  rich,  than  in  poor,  countries  ?  It  is  only 
in  rich  countries,  where  corn  is  dear,  that  landholders  induce  the 
legislature  to  prohibit  the  importation  of  corn.  Who  ever  heard 
of  a  law  to  prevent  the  importation  of  raw  produce  in  America  or 
Poland? — Nature  has  effectually  precluded  its  importation  by  the 
comparative  facility  of  its  production  in  those  countries. 

How,  then,  can  it  be  true,  that  u  if  you  except  corn,  and  such 
other  vegetables,  as  are  raised  altogether  by  human  industry,  all 
other  sorts  of  rude  produce — cattle,  poultry,  game  of  all  kinds,  the 
useful  fossils  and  minerals  of  the  earth,  &c.,  naturally  grow  dearer 
as  the  society  advances  ”  Why  should  corn  and  vegetables  alone 


ON  THE  COMPARATIVE  VALUE  OF  GOLD,  CORN,  AND  LABOUR.  227 

be  excepted  ?  Dr  Smith’s  error,  throughout  his  whole  work,  lies 
in  supposing  that  the  value  of  corn  is  constant ;  that  though  the 
value  of  all  other  thing  smay,  the  value  of  corn  never  can,  be  raised. 
Corn,  according  to  hirh^  is  always  of  the  same  value,  because  it  will 
always  feed  the  same  number  of  people.  In  the  same  manner,  it 
might  be  said  that  cloth  is  always  of  the  same  value,  because  it  will 
always  make  the  same  number  of  coats.  What  can  value  have  to 
do  with  the  power  of  feeding  and  clothing  ? 

Corn,  like  every  other  commodity,  has  in  every  country  its  natural 
price,  viz.  that  price  which  is  necessary  to  its  production,  and  with¬ 
out  which  it  could  not  be  cultivated  :  it  is  this  price  which  governs 
its  market  price,  and  which  determines  the  expediency  of  exporting 
it  to  foreign  countries.  If  the  importation  of  corn  were  prohibited 
in  England,  its  natural  price  might  rise  to  61.  per  quarter  in  Eng¬ 
land,  whilst  it  was  only  at  half  that  price  in  France.  If  at  this 
time,  the  prohibition  of  importation  were  removed,  corn  would  fall 
in  the  English  market,  not  to  a  price  between  6^.  and  3/.,  but  ulti¬ 
mately  and  permanently  to  the  natural  price  of  France,  the  price 
at  which  it  could  be  furnished  to  the  English  market,  and  afford 
the  usual  and  ordinary  profits  of  stock  in  France;  and  it  would 
remain  at  this  price,  whether  England  consumed  a  hundred  thou¬ 
sand,  or  a  million  of  quarters.  If  the  demand  of  England  were 
for  the  latter  quantity,  it  is  probable  that,  owing  to  the  necessity 
under  which  France  would  be,  of  having  recourse  to  land  of  a  worse 
quality,  to  furnish  this  large  supply,  the  natural  price  would  rise 
in  France;  and  this  would  of  course  affect  also  the  price  of  corn 
in  England.  All  that  I  contend  for  is,  that  it  is  the  natural  price 
of  commodities  in  the  exporting  country,  which  ultimately  regulates 
the  prices  at  which  they  shall  be  sold,  if  they  are  not  the  objects  of 
monopoly  in  the  importing  country. 

But  Dr  Smith,  who  has  so  ably  supported  the  doctrine  of  the 
natural  price  of  commodities  ultimately  regulating  their  market 
price,  has  supposed  a  case  in  which  he  thinks  that  the  market  price 
would  not  be  regulated  either  by  the  natural  price  of  the  exporting 
or  of  the  importing  country.  “  Diminish  the  real  opulence  either 
of  Holland  or  the  territory  of  Genoa,”  he  says,  “  while  the  number 
of  their  inhabitants  remains  the  same  ;  diminish  their  power  of 
supplying  themselves  from  distant  countries,  and  the  price  of  corn, 
instead  of  sinking  with  that  diminution  in  the  quantity  of  their 
silver  which  must  necessarily  accompany  this  declension,  either  as 
its  cause  or  as  its  effect,  will  rise  to  the  price  of  a  famine.” 

To  me  it  appears  that  the  very  reverse  would  take  place  :  the 
diminished  power  of  the  Dutch  or  Genoese  to  purchase  generally, 
might  depress  the  price  of  corn  for  a  time  below  its  natural  price  in 
the  country  from  which  it  was  exported,  as  well  as  in  the  countries 
in  which  it  was  imported  ;  but  it  is  quite  impossible  that  it  could 
lever  raise  it  above  that  price.  It  is  only  by  increasing  the  opulence 
of  the  Dutch  or  Genoese,  that  you  could  increase  the  demand,  and 


228 


ON  THE  COMPARATIVE  VALUE 


raise  the  price  of  corn  above  its  former  price ;  and  that  would  take 
place  only  for  a  very  limited  time,  unless  new  difficulties  should 
arise  in  obtaining  the  supply. 

Dr  Smith  further  observes  on  this  subject :  “  When  we  are  in 
want  of  necessaries,  we  must  part  with  all  superfluities,  of'  which 
the  value,  as  it  rises  in  times  of  opulence  and  prosperity,  so  it  sinks 
in  times  of  poverty  and  distress.”  This  is  undoubtedly  true  ;  but 
he  continues,  “  it  is  otherwise  with  necessaries.  Their  real  price, 
the  quantity  of  labour  which  they  can  purchase  or  command,  rises 
in  times  of  poverty  and  distress,  and  sinks  in  times  of  opulence  and 
prosperity,  which  are  always  times  of  great  abundance,  for  they 
could  not  otherwise  be  times  of  opulence  and  prosperity.  Corn 
is  a  necessary,  silver  is  only  a  superfluity.” 

Two  propositions  are  here  advanced,  which  have  no  connexion 
with  each  other  ;  one,  that  under  the  circumstances  supposed,  com 
would  command  more  labour,  which  is  not  disputed  ;  the  other,  that 
corn  would  sell  at  a  higher  money  price,  that  it  would  exchange  for 
more  silver;  this  I  contend  to  be  erroneous.  It  might  be  true,  if 
corn  were  at  the  same  time  scarce— if  the  usual  supply  had  not 
been  furnished.  Hut  in  this  case  it  is  abundant ;  it  is  not  pretended 
that  a  less  quantity  than  usual  is  imported,  or  that  more  is  required. 
To  purchase  corn,  the  Dutch  or  Genoese  want  money,  and  to 
obtain  this  money,  they  are  obliged  to  sell  their  superfluities.  It 
is  the  market  value  and  price  of  these  superfluities  which  falls,  and 
money  appears  to  rise  as  compared  with  them.  But  this  will  not 
tend  to  increase  the  demand  for  corn,  nor  to  lower  the  value  of 
money,  the  only  two  causes  which  can  raise  the  price  of  corn. 
Money,  from  a  want  of  credit,  and  from  other  causes,  may  be  in 
great  demand,  and  consequently  dear,  comparatively  with  corn; 
but  on  no  just  principle  can  it  be  maintained,  that  under  such 
circumstances  money  would  be  cheap,  and  therefore,  that  the  price 
of  corn  would  rise. 

When  we  speak  of  the  high  or  low  value  of  gold,  silver,  or  any 
other  commodity  in  different  countries,  we  should  always  mention 
some  medium  in  which  we  are  estimating  them,  or  no  idea  can  be 
attached  to  the  proposition.  Thus,  when  gold  is  said  to  be  dearer 
in  England  than  in  Spain,  if  no  commodity  is  mentioned,  what 
notion  does  the  assertion  convey  ?  If  corn,  olives,  oil,  wine,  and 
wool,  be  at  a  cheaper  price  in  Spain  than  in  England ;  estimated 
in  those  commodities,  gold  is  dearer  in  Spain.  If,  again,  hardware, 
sugar,  cloth,  &c.,  be  at  a  lower  price  in  England  than  in  Spain, 
then,  estimated  in  those  commodities,  gold  is  dearer  in  England. 
Thus  gold  appears  dearer  or  cheaper  in  Spain,  as  the  fancy  of  the 
observer  may  fix  on  the  medium  by  which  he  estimates  its  value. 
Adam  Smith,  having  stamped  corn  and  labour  as  a  universal 
measure  of  value,  would  naturally  estimate  the  comparative  value 
of  gold  by  the  quantity  of  those  two  objects  for  which  it  would 
exchange :  and,  accordingly,  when  he  speaks  of  the  comparative 


OF  GOLD,  CORN’,  AND  LABOUR. 


22S 


value  of  gold  in  two  countries,  I  understand  him  to  mean  its  value 
estimated  in  corn  and  labour. 

But  we  have  seen  that,  estimated  in  corn,  gold  may  be  of  very 
different  value  in  two  countries.  I  have  endeavoured  to  show  that 
it  will  be  low  in  rich  countries  and  high  in  poor  countries ;  Adam 
Smith  is  of  a  different  opinion  :  he  thinks  that  the  value  of  gold, 
estimated  in  corn,  is  highest  in  rich  countries.  But  without  further 
examining  which  of  these  opinions  is  correct,  either  of  them  is 
sufficient  to  show  that  gold  will  not  necessarily  be  lower  in  those 
countries  which  are  in  possession  of  the  mines,  though  this  is  a 
proposition  maintained  by  Adam  Smith.  Suppose  England  to  be 
possessed  of  the  mines,  and  Adam  Smith’s  opinion,  that  gold  is  of 
the  greatest  value  in  rich  countries,  to  be  correct :  although  gold 
would  naturally  flow  from  England  to  all  other  countries  in  exchange 
for  their  goods ,  it  would  not  follow  that  gold  was  necessarily  lower 
in  England,  as  compared  with  corn  and  labour,  than  in  those 
countries.  In  another  place,  however,  Adam  Smith  speaks  of  the 
precious  metals  being  necessarily  lower  in  Spain  and  Portugal  than 
in  other  parts  of  Europe,  because  those  countries  happen  to  be 
almost  the  exclusive  possessors  of  the  mines  which  produce  them. 
u  Poland,  where  the  feudal  system  still  continues  to  take  place,  is 
at  this  day  as  beggarly  a  country  as  it  was  before  the  discovery  of 
America.  The  money  price  of  corn,  however,  lias  risen ;  THE  REAL 
VALUE  OF  THE  PRECIOUS  METALS  HAS  FALLEN  ill  Poland  ill  tile 
same  manner  as  in  other  parts  of  Europe.  Their  quantity,  there¬ 
fore,  must  have  increased  there  as  in  other  places,  and  nearly  in 
the  same  proportion  to  the  annual  produce  of  the  land  and  labour. 
This  increase  of  the  quantity  of  those  metals,  however,  has  not,  it 
seems,  increased  that  annual  produce;  has  neither  improved  the 
manufactures  and  agriculture  of  the  country,  nor  mended  the 
circumstances  of  its  inhabitants.  Spain  and  Portugal,  the  coun¬ 
tries  which  possess  the  mines,  are,  after  Poland,  perhaps  the  two 
most  beggarly  countries  in  Europe.  The  value  of  the  precious 
metals,  however,  must  he  lower  in  Spain  and  Portugal  than  in  any 
other  parts  of  Europe,  loaded  not  only  with  a  freight  and  insurance, 
but  with  the  expense  of  smuggling,  their  exportation  being  either 
prohibited  or  subjected  to  a  duty.  In  proportion  to  the  annual  pro¬ 
duce  of  the  land  and  labour ,  therefore,  their  quantity  must  he  greater 
in  those  countries  than  in  any  other  part  of  Europe  :  those  coun¬ 
tries,  however,  are  poorer  than  the  greater  part  of  Europe.  Though 
the  feudal  system  has  been  abolished  in  Spain  and  Portugal,  it  has 
not  been  succeeded  by  a  much  better.” 

Dr  Smith’s  argument  appears  to  me  to  be  this  :  Gold,  when  esti¬ 
mated  in  corn,  is  cheaper  in  Spain  than  in  other  countries,  and  the 
proof  of  this  is  not  that  corn  is  given  by  other  countries  to  Spain  for 
gold,  but  that  cloth,  sugar,  hardware,  arc  by  those  countries  given 
in  exchange  for  that  metal. 


[  2.10  i 


CHAPTER  XXIX. 


TAXES  PAID  BY  THE  PRODUCER. 

Mons.  Say  greatly  magnifies  the  inconveniences  which  result  if  a 
tax  on  a  manufactured  commodity  is  levied  at  an  early,  rather  than 
at  a  late,  period  of  its  manufacture.  The  manufacturers,  he  observes, 
through  whose  hands  the  commodity  may  successively  pass,  must 
employ  greater  funds  in  consequence  of  having  to  advance  the  tax, 
which  is  often  attended  with  considerable  difficulty  to  a  manufac¬ 
turer  of  very  limited  capital  and  credit.  To  this  observation  no 
objection  can  be  made. 

Another  inconvenience  on  which  he  dwells  is,  that  in  consequence 
of  the  advance  of  the  tax,  the  profits  on  the  advance  also  must  be 
charged  to  the  consumer,  and  that  this  additional  tax  is  one  from 
which  the  treasury  derives  no  advantage. 

In  this  latter  objection  I  cannot  agree  with  M.  Say.  The  State, 
we  will  suppose,  wants  to  raise  immediately  1000/.,  and  levies  it  on 
a  manufacturer,  who  will  not  for  a  twelvemonth  be  able  to  charge 
it  to  the  consumer  on  his  finished  commodity.  In  consequence  of 
such  delay,  he  is  obliged  to  charge  for  his  commodity  an  additional 
price,  not  only  of  1000/.,  the  amount  of  the  tax,  but  probably  of 
1,100/.,  100/.  being  for  interest  on  the  1000/.  advanced.  But  in 
return  for  this  additional  100/.  paid  by  the  consumer,  he  has  a  real 
benefit,  inasmuch  as  his  payment  of  the  tax  which  Government 
required  immediately,  and  which  he  must  finally  pay,  has  been 
postponed  for  a  year ;  an  opportunity,  therefore,  has  been  afforded 
to  him  of  lending  to  the  manufacturer  who  had  occasion  for  it  the 
1000/.,  at  10  per  cent.,  or  at  any  other  rate  of  interest  which  might 
be  agreed  upon.  Eleven  hundred  pounds,  payable  at  the  end  of 
one  year,  when  money  is  at  10  per  cent,  interest,  is  of  no  more  value 
than  1000/.  to  be  paid  immediately.  If  Government  delayed  re¬ 
ceiving  the  tax  for  one  year,  till  the  manufacture  of  the  commodity 
was  completed,  it  would  perhaps  be  obliged  to  issue  an  Exchequer 
bill  bearing  interest,  and  it  would  pay  as  much  for  interest  as  the 
consumer  would  save  in  price,  excepting,  indeed,  that  portion  of 
the  price  which  the  manufacturer  might  be  enabled,  in  consequence 
of  the  tax,  to  add  to  his  own  real  gains.  If  for  the  interest  of  the 
Exchequer  bill  Government  would  pay  5  per  cent.,  a  tax  of  50/.  is 
saved  by  not  issuing  it.  If  the  manufacturer  borrowed  the  addi- 


TAXES  PAID  BY  THE  PRODUCER. 


231 


tional  capital  at  5  per  cent.,  and  charged  the  consumer  10  percent., 
he  also  will  have  gained  5  per  cent,  on  his  advance,  over  and  above 
his  usual  profits,  so  that  the  manufacturer  and  Government  together 
gain  or  save  precisely  the  sum  which  the  consumer  pays. 

M.  Simonde,  in  his  excellent  work,  De  la  Richesse  Commercial e, 
following  the  same  line  of  argument  as  M.  Say,  has  calculated  that 
a  tax  of  4000  francs,  paid  originally  by  a  manufacturer,  whose 
profits  were  at  the  moderate  rate  of  10  per  cent.,  would,  if  the 
commodity  manufactured  only  passed  through  the  hands  of  five 
different  persons,  be  raised  to  the  consumer  to  the  sum  of  6,734 
francs.  This  calculation  proceeds  on  the  supposition,  that  he  who 
first  advanced  the  tax,  would  receive  from  the  next  manufacturer 
4,400  francs,  and  he  again  from  the  next,  4,840  francs  ;  so  that  at 
each  step  10  per  cent,  on  its  value  would  be  added  to  it.  This  is 
to  suppose  that  the  value  of  the  tax  would  be  accumulating  at 
compound  interest;  not  at  the  rate  of  10  per  cent,  per  annum,  but 
at  an  absolute  rate  of  10  per  cent,  at  every  step  of  its  progress. 
This  opinion  of  M.  de  Simonde  would  be  correct,  if  five  years 
elapsed  between  the  first  advance  of  the  tax,  and  the  sale  of  the 
taxed  commodity  to  the  consumer;  but  if  one  year  only  elapsed,  a 
remuneration  of  400  francs,  instead  of  2,734,  would  give  a  profit  at 
the  rate  of  10  per  cent,  per  annum,  to  all  who  had  contributed  to 
the  advance  of  the  tax,  whether  the  commodity  had  passed  througu 
the  hands  of  five  manufacturers  or  fifty. 


r 

L 


232  ] 


CHAPTER  XXX. 


ON  THE  INFLUENCE  OF  DEMAND  AND  SUPPLY  ON 

PRICES. 

It  is  the  cost  of  production  which  must  ultimately  regulate  the 
price  of  commodities,  and  not,  as  has  been  often  said,  the  propor¬ 
tion  between  the  supply  and  demand :  the  proportion  between 
supply  and  demand  may,  indeed,  for  a  time,  affect  the  market 
value  of  a  commodity,  until  it  is  supplied  in  greater  or  less  abun¬ 
dance,  according  as  the  demand  may  have  increased  or  diminished ; 
but  this  effect  will  be  only  of  temporary  duration. 

Diminish  the  cost  of  production  of  hats,  and  their  price  will 
ultimately  fall  to  their  new  natural  price,  although  the  demand 
should  be  doubled,  trebled,  or  quadrupled.  Diminish  the  cost  of 
subsistence  of  men,  by  diminishing  the  natural  price  of  the  ftw'J 
and  clothing,  by  which  life  is  sustained,  and  wages  will  ultimate^ 
fall,  notwithstanding  that  the  demand  for  labourers  may  very 
reatly  increase. 


^The  opinion  that  the  price  of  commodities  depends  solely  on  the 
proportion  of  supply  to  demand,  or  demand  to  supply,  has  become 
almost  an  axiom  in  political  economy,  and  has  been  the  source  of 
much  error  in  that  science.  It  is  this  opinion  which  has  made  Mr 
Buchanan  maintain  that  wages  are  not  influenced  by  a  rise  or  fall 
in  the  price  of  provisions,  but  solely  by  the  demand  and  supply  of 
labour ;  and  that  a  tax  on  the  wages  of  labour  would  not  raise 
wages,  because  it  would  not  alter  the  proportion  of  the  demand  of 
labourers  to  the  supply. 

The  demand  for  a  commodity  cannot  be  said  to  increase,  if  no 
additional  quantity  of  it  be  purchased  or  consumed  ;  and  yet,  under 
such  circumstances,  its  money  value  may  rise.  Thus,  if  the  value 
of  money  were  to  fall,  the  price  of  every  commodity  would  rise,  for 
each  of  the  competitors  would  be  willing  to  spend  more  money  than 
before  on  its  purchase  ;  but  though  its  price  rose  10  or  20  per  cent., 
if  no  more  were  bought  than  before,  it  would  not,  I  apprehend,  be 
admissible  to  say,  that  the  variation  in  the  price  of  the  commodity 
was  caused  by  the  increased  demand  for  it.\  Its  natural  price,  its 
money  cost  of  production,  would  be  really  altered  by  the  altered 
value  of  money  ;  and  without  any  increase  of  demand,  the  price  of 
the  commodity  would  be  naturally  adjusted  to  that  new  value 


ON  THE  INFLUENCE  OF  DEMAND  AND  SUPPLY  ON  PRICES.  233 


“We  have  seen,”  says  M.  Say,  “that  the  cost  of  production 
determines  the  lowest  price  to  which  things  can  fall  :  the  price 
below  which  they  cannot  remain  for  any  length  of  time,  because 
production  would  then  be  either  entirely  stopped  or  diminished.” 

Vol.  ii.  p.  26. 

He  afterwards  says,  that  the  demand  for  gold  having  increased  in 
a  still  greater  proportion  than  the  supply,  since  the  discovery  of  the 
mines,  “its  price  in  goods,  instead  of  falling  in  the  proportion  of 
ten  to  one,  fell  only  in  the  proportion  of  four  to  one  that  is  to  sav, 
instead  of  falling  in  proportion  as  its  natural  price  had  fallen,  fell 
in  proportion  as  the  supply  exceeded  the  demand.* — “  The  value  of 
every  commodity  rises  always  in  a  direct  ratio  to  the  demand ,  and  in 
an  inverse  ratio  to  the  supply.” 

The  same  opinion  is  expressed  by  the  Earl  of  Lauderdale. 

“  With  respect  to  the  variations  in  value,  of  which  every  thing 
valuable  is  susceptible,  if  we  could  for  a  moment  suppose  that  any 
substance  possessed  intrinsic  and  fixed  value,  so  as  to  render  an 
assumed  quantity  of  it  constantly,  under  all  circumstances,  of  an 
equal  value,  then  the  degree  of  value  of  all  things,  ascertained  by 
such  a  fixed  standard,  would  vary  according  to  the  proportion 
betwixt  the  quantity  of  them  and  the  demand  for  them,  and  every 
commodity  would,  of  course,  be  subject  to  a  variation  in  its  value, 
from  four  different  circumstances  : 

1.  “  It  would  be  subject  to  an  increase  of  its  value,  from  a  diminu¬ 
tion  of  its  quantity. 

2.  “  To  a  diminution  of  its  value,  from  an  augmentation  of  its 
quantity. 

3.  “  It  might  suffer  an  augmentation  in  its  value,  from  the  cir¬ 
cumstance  of  an  increased  demand. 

4.  “Its  value  might  be  diminished  bv  a  failure  of  demand. 

“As  it  will,  however,  clearly  appear  that  no  commodity  can  pos¬ 
sess  fixed  and  intrinsic  value,  so  as  to  qualify  it  for  a  measure  of 
the  value  of  other  commodities,  mankind  are  induced  to  select,  as 
a  practical  measure  of  value,  that  which  appears  the  least  liable  to 
any  of  these  four  sources  of  variations,  which  are  the  sole  causes  of 
alteration  of  value. 

“  When,  in  common  language,  therefore,  we  express  the  value  of 
any  commodity,  it  may  vary  at  one  period  from  what  it  is  at 
another,  in  consequence  of  eight  different  contingencies  : — 

1.  “From  the  four  circumstances  above  stated,  in  relation  to  the 
commodity  of  which  we  mean  to  express  the  value. 


*  If,  with  the  quantity  of  gold  and  silver  which  actually  exists,  these  metals  onlv 
served  for  the  manufacture  of  utensils  and  ornaments,  they  would  he  abundant,  and 
would  be  much  cheaper  than  they  are  at  present :  in  other  words,  in  exchanging 
them  for  any  other  species  of  goods,  we  should  be  obliged  to  give  proportionally  a 
greater  quantity  of  them.  But  as  a  large  quantity  of  these  metals  is  used  for  money, 
and  as  this  portion  is  used  for  no  ether  purpose,  there  remains  less  to  be  employed  in 
furniture  and  jewellery  ;  now  this  scarcity  adds  to  their  \alue. — Sny,  vol.  ii.  p.  316. 
See  also  note  to  p.  7g. 


234  OX  THE  INFLUENCE  OF  DEMAND  AND  SUPPLY  ON  PRICES. 

2.  “  From  the  same  four  circumstances,  in  relation  to  the  com¬ 
modity  we  have  adopted  as  a  measure  of  value.”* 

This  is  true  of  monopolized  commodities,  and,  indeed,  of  the 
market  price  of  all  other  commodities  for  a  limited  period.  Ilf  the 
demand  for  hats  should  be  doubled,  the  price  would  immediately 
rise,  but  that  rise  would  be  only  temporary,  unless  the  cost  of 
production  of  hats  or  their  natural  price  were  raised.  If  the  natural 
price  of  bread  should  fall  50  per  cent,  from  some  great  discovery  in 
the  science  of  agriculture,  the  demand  would  not  greatly  increase, 
for  no  man  would  desire  more  than  would  satisfy  his  wants,  and  as 
the  demand  would  not  increase,  neither  would  the  supply ;  for  a 
commodity  is  not  supplied  merely  because  it  can  be  produced,  but 
because  there  is  a  demand  for  it.  Here,  then,  we  have  a  case 
where  the  supply  and  demand  have  scarcely  varied,  or,  if  they  have 
increased,  they  have  increased  in  the  same  proportion ;  and  yet  the 
price  of  bread  will  have  fallen  50  per  cent.,  at  a  time,  too,  when  the 
value  of  money  had  continued  invariable.  jj 

Commodities  which  are  monopolized,  either  bv  an  individual  or 
by  a  company,  vary  according  to  the  law  which  Lord  Lauderdale 
has  laid  down  :  they  fall  in  proportion  as  the  sellers  augment  their 
quantity,  and  rise  in  proportion  to  the  eagerness  of  the  buyers  to 
purchase  them ;  their  price  lias  no  necessary  connexion  with  their 
natural  value:  but  the  prices  of  commodities  which  are  subject  to 
competition,  and  whose  quantity  may  be  increased  in  any  moderate 
degree,  will  ultimately  depend,  not  on  the  state  of  demand  and 
supply,  but  on  the  increased  or  diminished  cost  of  their  production 


All  Inquiry  into  the  Nature  and  Origin  of  Public  Wealth,  p.  13. 


CHAPTER  XXXI. 


ON  MACHINERY. 

In  the  present  chapter  I  shall  enter  into  some  inquiry  respecting 
the  influence  of  machinery  on  the  interests  of  the  different  classes 
of  society,  a  subject  of  great  importance,  and  one  which  appears 
never  to  have  been  investigated  in  a  manner  to  lead  to  any  certain 
or  satisfactory  results.  It  is  more  incumbent  on  me  to  declare  my 
opinion  on  this  question,  because  they  have,  on  further  reflection, 
undergone  a  considerable  change  ;  and  although  I  am  not  aware 
that  I  have  ever  published  anything  respecting  machinery  which  it 
is  necessary  for  me  to  retract,  yet  I  have  in  other  ways  given  my 
support  to  doctrines  which  I  now  think  erroneous  ;  it  therefore 
becomes  a  duty  in  me  to  submit  my  present  views  to  examination, 
with  my  reasons  for  entertaining  them. 

Ever  since  I  first,  turned  my  attention  to  questions  of  political 
economy,  I  have  been  of  opinion  that  such  an  application  of 
machinery  to  any  branch  of  production  as  should  have  the  effect  of 
saving  labour,  was  a  general  good,  accompanied  only  with  that 
portion  of  inconvenience  which  in  most  cases  attends  the  removal 
of  capital  and  labour  from  one  employment  to  another.  It  appeared 
to  me.  that.,  provided  the  landlords  had  the.  same. anon ev  rents,  they 
would  be  benefited  by  the  reduction  in  the  prices  of  some  of  the 
commodities  on  which  those  rents  were  expended,  and  which 
reduction  of  price  could  not  fail  to  be  the  consequence  of  the 
employment  of  machinery.  The  capitalist,  I  thought,  was  even¬ 
tually  benefited  precisely  in  the  same  manner.  lie,  indeed,  who 
made  the  discovery  of  the  machine,  or  who  first  usefully  applied  it, 
would  enjoy  an  additional  advantage  by  making  great  profits  for  a 
time  ;  but,  in  proportion  as  the  machine  came  into  general  use,  the 
price  of  the  commodity  produced  would,  from  the  effects  of  compe¬ 
tition,  sink  to  its  cost  of  production,  when  the  capitalist  would  get 
the  same  money  profits  as  before,  and  he  would  only  participate  in 
the  general  advantage,  as  a  consumer,  by  being  enabled,  with  the  same 
money  revenue,  to  command  an  additional  quantity  of  comforts  and 
enjoyments.  The  class  of  labourers  also,  I  thought,  was  equally  bene¬ 
fited  by  the  use  of  machinery,  as  they  would  have  the  means  of  buying 
more  commodities  with  the  same  money  wages,  and  I  thought  that 
no  reduction  of  wages  would  take  place,  because  the  capitalist  would 
have  the  power  of  demanding  and  employing  the  same  quantity  of 


ON  MACHINERY. 


.s  before,  although  he  might  be  under  the  necessity  of 
ying  it  in  the  production  of  a  new,  or,  at  any  rate,  of  a 
rent  commodity.  If,  by  improved  machinery,  with  the  employ- 

jut  of  the  same  quantity  of  labour,  the  quantity  of  stockings  could 
je  quadrupled,  and  the  demand  for  stockings  were  only  doubled, 
some  labourers  would  necessarily  be  discharged  from  the  stocking- 
trade  ;  but  as  the  capital  which  employed  them  was  still  in  being, 
and  as  it  was  the  interest  of  those  who  had  it  to  employ  it  produc¬ 
tively,  it  appeared  to  me  that  it  would  be  employed  on  the  production 
or  some  other  commodity  useful  to  the  society,  for  which  there  could 
not  fail  to  be  a  demand  ;(for  I  was,  and  am,  deeply  ^impressed  with 
the  truth  of  the  observation  of  Adam  Smith,  that  a  the  desire  for 
food  is  limited  in  every  man  by  the  narrow  capacity  of  the  human 
stomach,  but  the  desire  of  the  conveniences  and  ornaments  of 
building,  dress,  equipage,  and  household  furniture,  seems  to  have 
no  limit  or  certain  boundary.”  As,  then,  it  appeared  to  me  that 
there  would  be  the  same  demand  for  labour  as  before,  and  that 
wages  would  be  no  lower,  I  thought  that  the  labouring  class  would, 
equally  with  the  other  classes,  participate  in  the  advantage,  from 
the  general  cheapness  of  commodities  arising  from  the  use  of 
machinery. 

These  were  my  opinions,  and  they  continue  unaltered,  as  far  as 
regards  the  landlord  and  the  capitalist ;  -but  I  am -convincecLtbat 
the  substitution  of  machinery  for  human- labour  is  often  xeiW-inju*. 
rious  to  the  interests  of  thc-dass  of  labourers. 

My  mistake  arose  from  the  supposition,  that  whenever  the  net 
income  of  a  society  increased,  its  gross  income  would  also  increase  ; 
I  now,  however,  see  reason  to  be  satisfied  that  the  one  fund,  from 
which  landlords  and  capitalists  derive  their  revenue,  may  increase, 
while  the  other,  that  upon  which  the  labouring  class  mainly  depend, 
may  diminish,  and  therefore  it  follows,  if  I  am  right,  that  the  same 
cause  which  may  increase  the  net  revenue  of  the  country  may  at 
the  same  time  render  the  population  redundant,  and  deteriorate  the 
condition  of  the  labourer. 

A  capitalist,  we  will  suppose,  employs  a  capital  of  the  value  of 
20,000/.,  and  that  he  carries  on  the  joint  business  of  a  farmer  and 
a  manufacturer  of  necessaries.  We  will  further  suppose,  that 
7000/.  of  this  capital  is  invested  in  fixed  capital,  viz.  in  buildings, 
implements,  &c.  &c.,  and  that  the  remaining  13,000/.  is  employed 
as  circulating  capital  in  the  support  of  labour.  Let  us  suppose,  too, 
that  profits  are  10  per  cent.,  and  consequently  that  the  capitalist’s 
capital  is  every  year  put  into  its  original  state  of  efficiency,  and 
yields  a  profit  of  2000/. 

Each  year  the  capitalist  begins  his  operations  by  having  food  and 
necessaries  in  his  possession  of  the  value  of  13,000/.,  all  of  which 
he  sells  in  the  course  of  the  year  to  his  own  workmen  for  that  sum 
of  money,  and,  during  the  same  period,  he  pays  them  the  like 
amount  of  money  for  wages  :  at  the  end  of  the  year  they  replace  in 


OX  MACHINERY. 


237 


his  possession  food  and  necessaries  of  the  value  of  15,000/.,  2000/. 
of  which  he  consumes  himself,  or  disposes  of  as  may  best  suit  his 
pleasure  and  gratification.  As  far  as  these  products  are  concerned, 
the  gross  produce  for  that  year  is  15,000/.,  and  the  net  produce 
2000/.  Suppose,  now,  that  the  following  year  the  capitalist  em¬ 
ploys  half  his  men  in  constructing  a  machine,  and  the  other  hait  in 
producing  food  and  necessaries  as  usual.  During  that  year  he 
would  pay  the  sum  of  13,000/.  in  wages  as  usual,  and  would  sea 
food  and  necessaries  to  the  same  amount  to  his  workmen ;  but  what 
would  be  the  case  the  following  year? 

While  the  machine  was  being  made,  only  one-half  of  the  usual 
quantity  of  food  and  necessaries  would  be  obtained,  and  they  would 
be  only  one-half  the  value  of  the  quantity  which  was  produced 
before.  The  machine  would  be  worth  7,500/.,  and  the  food  and 
necessaries  7,500/.,  and,  therefore,  the  capital  of  the  capitalist  would 
be  as  great  as  before ;  for  he  would  have,  besides  these  two  values, 
his  fixed  capital  worth  7000/.,  making  in  the  whole  20,000/.  capital, 
and  2000/.  profit.  After  deducting  this  latter  sum  for  his  own 
expenses,  he  would  have  a  no  greater  circulating  capital  than 
5,500/.  with  which  to  carry  on  his  subsequent  operations  ;  and, 
therefore,  his  means  of  employing  labour  would  be  reduced  in  the 
proportion  of  13,000/.  to  5,500/.,  and,  consequently,  all  the  labour 
which  was  before  employed  by  7,500/.  would  become  redundant. 

The  reduced  quantity  of  labour  which  the  capitalist  canvemplov, 
must,  indeed,  with  the  assistance  of  the  machine,  and  after  deduc¬ 
tions  for  its  repairs,  produce  a  value  equal  to  7,500/.,  it  must  replace 
the  circulating  capital  with  a  profit  of  2000/.  on  the  whole  capital ; 
but  if  this  be  done,  if  the  net  income  be  not  diminished,  of  what 
importance  is  it  to  the  capitalist,  whether  the  gross  income  be  of 
the  value  of  3000/.,  of  10,000/.,  or  of  15,000/.  ? 

In  this  case,  then,  although  the  net  produce  will  not  be  diminished 
in  value,  although  its  power  of  purchasing  commodities  may  be 
greatly  increased,  the  gross  produce  will  have  fallen  from  a  value 
of  15,000/.  to  a  value  of  7,500/. ;  and  as  the  power  of  supporting  a 
population,  and  employing  labour,  depends  always  on  the  gross 
produce  of  a  nation,  and  not  on  its  net  produce,  there  will  neces¬ 
sarily  be  a  diminution  in  the  demand  for  labour,  population  will 
become  redundant,  and  the  situation  of  the  labouring  classes  will 
be  that  of  distress  and  poverty. 

As,  however,  the  power  of  saving  from  revenue  to  add  to  capital, 
must  depend  on  the  efficiency  of  the  net  revenue,  to  satisfy  the 
wants  of  the  capitalist,  it  could  not  fail  to  follow  from  the  reduction 
in  the  price  of  commodities  consequent  on  the  introduction  of 
machinery,  that  with  the  same  wants  he  would  have  increased 
means  of  saving — increased  facility  of  transferring  revenue  into 
capital.  But  with  every  increase  of  capital  he  would  employ  more 
labourers ;  and,  therefore,  a  portion  of  the  people  thrown  out  of 
work  in  the  first  instance,  would  be  subsequently  employed  ;  and 


238 


ON  MACHINERY. 


if  the  increased  production,  in  consequence  of  the  employment  of 
the  machine,  was  so  great  as  to  afford,  in  the  shape  of  net  produce, 
as  great  a  quantity  of  food  and  necessaries  as  existed  before  in  the 
form  of  gross  produce,  there  would  be  the  same  ability  to  employ 
the  whole  population,  and,  therefore,  there  would  not  necessarily  be 
any  redundancy  of  people. 

All  I  wish  to  prove  is,  that  the  discovery  and  use  of  machinci'y  may 
be  attended  with  a  diminution  of  gross  produce  ;  and  whenever  that 
is  the  case,  it  will  be  injurious  to  the  labouring  class,  as  some  of 
their  number  will  be  thrown  out  of  employment,  and  population 
will  become  redundant,  compared  with  the  funds  which  are  to 
employ  it. 

The  case  which  I  have  supposed  is  the  most  simple  that  I  could 
select ;  but  it  would  make  no  difference  in  the  result,  if  we  supposed 
that  the  machinery  was  applied  to  the  trade  of  any  manufacturer, — 
that  of  a  clothier,  for  example,  or  of  a  cotton  manufacturer.  If,  in 
the  trade  of  a  clothier,  less  cloth  would  be  produced  after  the  intro¬ 
duction  of  machinery  ;  for  a  part  of  that  quantity  which  is  disposed 
of  for  the  purpose  of  paying  a  large  body  of  workmen,  would  not 
be  required  by  their  employer.  In  consequence  of  using  the 
machine,  it  would  be  necessary  for  him  to  reproduce  a  value,  only 
equal  to  the  value  consumed,  together  with  the  profits  on  the  whole 
capital.  7,500/.  might  do  this  as  effectually  as  15,000/.  did  before, 
the  case  differing  in  no  respect  from  the  former  instance.  It  may 
be  said,  however,  that  the  demand  for  cloth  would  be  as  great  as 
before,  and  it  may  be  asked  from  whence  would  this  supply  come? 
But  by  whom  would  the  cloth  be  demanded  ?  By  the  farmers  and 
the  other  producers  of  necessaries,  who  employed  their  capitals  in 
producing  these  necessaries  as  a  means  of  obtaining  cloth :  they 
gave  corn  and  necessaries  to  the  clothier  for  cloth,  and  he  bestowed 
them  on  his  workmen  for  the  cloth  which  their  work  afforded  him. 

This  trade  would  now  cease ;  the  clothier  would  not  want  the 
food  and  clothing,  having  fewer  men  to  employ  and  having  less 
cloth  to  dispose  of.  The  farmers  and  others,  who  only  produced 
necessaries  as  means  to  an  end,  could  no  longer  obtain  cloth  by 
such  an  application  of  their  capitals,  and,  therefore,  they  would 
either  themselves  employ  their  capitals  in  producing  cloth,  or  would 
lend  them  to  others,  in  order  that  the  commodity  really  wanted 
might  be  furnished;  and  that  for  which  no  one  had  the  means  of 
paying,  or  for  which  there  was  no  demand,  might  cease  to  be  pro¬ 
duced.  This,  then,  leads  us  to  the  same  result ;  the  demand  for 
labour  would  diminish,  and  the  commodities  necessary  to  the  support 
of  labour  would  not  be  produced  in  the  same  abundance. 

If  these  views  be  correct,  it  follows,  1st,  That  the  discovery,  and 
useful  application  of  machinery,  always  leads  to  the  increase  of  the 
net  produce  of  the  country,  although  it  may  not,  and  will  not,  after 
an  inconsiderable  interval,  increase  the  value  ofthat.net  produce. 

2dly,  That  an  increase  of  the  net  produce  of  a  country  is  com- 


ON  MACH  INERT. 


239 


patible  with  a  diminution  of  the  gross  produce,  and  that  the  motives 
for  employing  machinery  are  always  sufficient  to  ensure  its  employ¬ 
ment,  if  it  will  increase  the  net  produce,  although  it  may,  and 
frequently  must,  diminish  both  the  quantity  of  the  gross  produce, 
and  its  value. 

3dly,  That  the  opinion  entertained  by  the  labouring  class,  that 
the  employment  of  machinery  is  frequently  detrimental  to  their 
interests,  is  not  founded  on'prejudice  and  error,  but  is  conformable 
to  the  correct  principles  of  political  economy. 

4thly,  That  if  the  improved  means  of  production,  in  consequence 
of  the  use  of  machinery,  should  increase  the  net  produce  of  a  country 
in  a  degree  so  great  as  not  to  diminish  the  gross  produce,  (I  mean 
always  quantity  of  commodities,  and  not  value),  then  the  situation 
of  all  classes  will  be  improved.  The  landlord  and  capitalist  will 
benefit,  not  by  an  increase  of  rent  and  profit,  but  by  the  advantages 
resulting  from  the  expenditure  of  the  same  rent,  and  profit  on  com¬ 
modities,  very  considerably  reduced  in  value,  while  the  situation  of 
the  labouring  classes  will  also  be  considerably  improved  ;  1st,  from 
the  increased  demand  for  menial  servants  ;  2dly,  from  the  stimulus 
to  savings  from  revenue,  which  such  an  abundant  net  produce  will 
afford;  and,  3dly,  from  the  low  price  of  all  articles  of  consumption 
on  which  their  wages  will  be  expended. 

Independently  of  the  consideration  of  the  discovery  and  use  of 
machinery,  to  which  our  attention  has  been  just  directed,  the 
labouring  class  have  no  small  interest  in  the  manner  in  which  the 
net  income  of  the  country  is  expended,  although  it  should,  in  all 
cases,  be  expended  for  the  gratification  and  enjoyments  of  those 
who  are  fairly  entitled  to  it. 

If  a  landlord,  or  a  capitalist,  expends  his  revenue  in  the  manner 
of  an  ancient  baron,  in  the  support  of  a  great  number  of  retainers, 
or  menial  servants,  he  will  give  employment  to  much  more  labour, 
than  if  he  expended  it  on  fine  clothes,  or  costly  furniture ;  on 
carriages,  on  horses,  or  in  the  purchase  of  any  other  luxuries. 

In  both  cases  the  net  revenue  would  be  the  same,  and  so  would 
be  the  gross  revenue,  but  the  former  would  be  realised  in  different 
commodities.  If  my  revenue  were  10,000/.,  the  same  quantity 
nearly  of  productive  labour  would  be  employed,  whether  I  realised 
it  in  fine  clothes  and  costly  furniture,  &c.,  &c.,or  in  a  quantity  of  food 
and  clothing  of  the  same  value.  If,  however,  I  realised  my  revenue 
in  the  first  set  of  commodities,  no  more  labour  would  be  consequently 
employed  : — I  should  enjoy  my  furniture  and  my  clothes,  and  there 
would  be  an  end  of  them  ;  but  if  1  realised  my  revenue  in  food  and 
clothing,  and  my  desire  was  to  employ  menial  servants,  all  those 
whom  I  could  so  employ  with  my  revenue  of  10,000/.,  or  with  the 
food  and  clothing  which  it  would  purchase,  would  be  to  be  added 
to  the  former  demand  for  labourers,  and  this  addition  would  take 
place  only  because  1  chose  this  mode  of  expending  my  revenue. 


240 


ON  MACHINERY. 


As  the  labourers,  then,  are  interested  in  the  demand  for  labour, 
they  must  naturally  desire  that  as  much  of  the  revenue  as  possible 
should  be  diverted  from  expenditure  on  luxuries,  to  be  expended 
in  the  support  of  menial  servants. 

In  the  same  manner,  a  country  engaged  in  war,  and  which  is 
under  the  necessity  of  maintaining  large  fleets  and  armies,  employs 
a  great  many  more  men  than  will  be  employed  when  the  war 
terminates,  and  the  annual  expenses  which  it  brings  with  it,  cease. 

If  I  were  not  called  upon  for  a  tax  of  500Z.  during  the  war,  and 
which  is  expended  on  men  in  the  situations  of  soldiers  and  sailors, 
I  might  probably  expend  that  portion  of  my  income  on  furniture, 
clothes,  books,  <£c.,  &c.,  and  whether  it  was  expended  in  the  one 
way  or  in  the  other,  there  would  be  the  same  quantity  of  labour 
employed  in  production;  for  the  food  and  clothing  of  the  soldier 
and  sailor  would  require  the  same  amount  of  industry  to  produce  it 
as  the  more  luxurious  commodities  ;  but  in  the  case  of  the  war, 
there  would  be  the  additional  demand  for  men  as  soldiers  and 
sailors ;  and,  consequently,  a  war  which  is  supported  out  of  the 
revenue,  and  not  from  the  capital  of  a  country,  is  favourable  to  the 
increase  of  population. 

At  the  termination  of  the  war,  when  part  of  my  revenue  reverts 
to  me,  and  is  employed  as  before  in  the  purchase  of  wine,  furniture, 
or  other  luxuries,  the  population  which  it  before  supported,  and 
which  the  war  called  into  existence,  will  become  redundant,  and  by 
its  effect  on  the  rest  of  the  population,  and  its  competition  with  it 
for  employment,  will  sink  the  value  of  wages,  and  very  materially 
deteriorate  the  condition  of  the  labouring  classes. 


There  is  one  other  case  that  should  be  noticed  of  the  possibility 
of  an  increase  in  the  amount  of  the  net  revenue  of  a  country,  and 
even  of  its  gross  revenue,  with  a  diminution  of  demand  for  labour, 
and  that  is,  when  the  labour  of  horses  is  substituted  for  that  of  man. 
If  I  employed  one  hundred  men  on  my  farm,  and  if  I  found  that 
the  food  bestowed  on  fifty  of  those  men,  could  be  diverted  to  the 
support  of  horses,  and  afford  me  a  greater  return  of  raw  produce, 
after  allowing  for  the  interest  of  the  capital  which  the  purchase  of 
the  horses  would  absorb,  it  would  be  advantageous  to  me  to 
substitute  the  horses  for  the  men,  and  I  should  accordingly  do  so  ; 
but  this  would  not  be  for  the  interest  of  the  men,  and  unless  the 
income  I  obtained  was  so  much  increased  as  to  enable  me  to  employ 
the  men  as  well  as  the  horses,  it  is  evident  that  the  population 
would  become  redundant,  and  the  labourer’s  condition  would  sink 
in  the  general  scale.  It  is  evident  he  could  not,  under  any  circum¬ 
stances,  be  employed  in  agriculture  ;  but  if  the  produce  of  the  land 
were  increased  by  the  substitution  of  horses  for  men,  he  might  be  . 
employed  in  manufactures,  or  as  a  menial  servant.  / 

The  statements  which  I  have  made  will  not,  I  hope,  lead  toV  the 
inference  that  machinery  should  not  be  encouraged.  To  elueillate 
the  principle,  I  have  been  supposing,  that  improved  machinery  is 


ON  MACHINERY. 


241 


suddenly  discovered,  and  extensively  used  ;  but  tbe  truth  is,  that 
these  discoveries  are  gradual,  and  rather  operate  in  determining  the 
employment  of  the  capital  which  is  saved  and  accumulated,  than  in 
diverting  capital  from  its  actual  employment. 

/  With  every  increase  of  capital  and  population,  food  will  generally 
/rise,  on  account  of  its  being  more  difficult  to  produce.  The  con¬ 
sequence  of  a  rise  of  food  will  be  a  rise  of  wages,  and  every  rise  of 
wages  will  have  a  tendency  to  determine  the  saved  capital  in  a 
greater  proportion  than  before  to  the  employment  of  machinery .j 
Machinery  and  labour  are  in  constant  competition,  and  the  former 
can  frequently  not  be  employed  until  labour  rises. 

In  America  and  many  other  countries,  where  the  food  of  man  is 
easily  provided,  there  is  not  nearly  such  great  temptation  to  employ 
machinery  as  in  England,  where  food  is  high,  and  costs  much  labour 
for  its  production.  The  same  cause  that  raises  labour  does  not 
raise  the  value  of  machines,  and,  therefore,  with  every  augmenta¬ 
tion  of  capital,  a  greater  proportion  of  it  is  employed  on  machinery. 
The  demand  for  labour  will  continue  to  increase  with  an  increase 
of  capital,  but  not  in  proportion  to  its  increase;  the  ratio  will 
necessarilv  be  a  diminishing  ratio.* 

I  have  before  observed,  too,  that  the  increase  of  net  incomes, 
estimated  in  commodities,  which  is  always  the  consequence  of  im¬ 
proved  machinery,  will  lead  to  new  savings  and  accumulations. 
These  savings,  it  must  be  remembered,  are  annual,  and  must  soon 
create  a  fund  much  greater  than  the  gross  l’evenue  originally  lost 
by  the  discovery  of  the  machine,  when  the  demand  for  labour  will 
be  as  great  as  before,  and  the  situation  of  the  people  will  be  still 
further  improved  by  the  increased  savings  which  the  increased  net 
revenue  will  still  enable  them  to  make. 

The  employment  of  machinery  could  never  be  safely  discouraged 
in  a  State,  for  if  a  capital  is  not  allowed  to  get  the  greatest  net 
revenue  that  the  use  of  machinery  will  afford  here,  it  will  be  carried 

*  “The  demand  for  labour  depends  on  the  increasing  of  circulating,  and  not  of 
fixed  capital.  Were  it  true  that  the  proportion  between  these  two  sorts  of  capital  is 
the  same  at  all  times,  and  in  all  countries,  then,  indeed,  it  follows  that  the  number  of 
labourers  employed  is  in  proportion  to  the  wealth  of  the  State.  But  such  a  position 
has  not  the  semblance  of  probability.  As  arts  are  cultivated,  and  civilization  is  ex¬ 
tended,  fixed  capital  bears  a  larger  and  larger  proportion  to  circulating  capital.  The 
amount  of  fixed  capital  employed  in  the  production  of  a  piece  of  British  muslin  is  at 
least  a  hundred,  probably  a  thousand  times  greater  than  that  employed  in  the  produc¬ 
tion  of  a  similar  piece  of  Indian  muslin.  And  the  proportion  of  circulating  capital 
employed  is  a  hundred  or  a  thousand  times  less.  It  is  easy  to  conceive  that,  under 
certain  circumstances,  the  whole  of  the  annual  savings  of  an  industrious  people  might 
he  added  to  fixed  capital,  in  which  case  they  would  have  no  effect  in  increasing  the 
demand  for  labour.” — Barton,  “  On  the  Condition  of  the  Labouring  Classes  of  Society,” 
page  16. 

It  is  not  easy,  I  think,  to  conceive  that,  under  any  circumstances,  an  increase  of 
capital  should  not  he  followed  by  an  increased  demand  for  labour  ;  the  most  that  can 
be  said  is,  that  the  demand  will  be  in  a  diminishing  ratio.  Mr  Barton,  in  the  above 
publication,  has,  1  think,  taken  a  correct  view  of  some  of  the  effects  of  an  increasing 
amount  of  fixed  capital  on  the  condition  of  the  labouring  classes.  Ilis  Essay  contains 
much  valuable  information. 


Q 


242 


ON  MACHINERY. 


abroad,  and  this  must  be  a  much  more  serious  discouragement  to 
the  demand  for  labour  than  the  most  extensive  employment  of 
machinery ;  for  while  a  capital  is  employed  in  this  country  it  must 
create  a  demand  for  some  labour;  machinery  cannot  be  worked 
without  the  assistance  of  men,  it  cannot  be  made  but  with  the  con¬ 
tribution  of  their  labour.  By  investing  part  of  a  capital  in  improved 
machinery,  there  will  be  a  diminution  in  the  progressive  demand 
for  labour ;  by  exporting  it  to  another  country,  the  demand  will 
be  wholly  annihilated. 

The  prices  of  commodities,  too,  are  regulated  by  their  cost  of  pro¬ 
duction.  By  employing  improved  machinery,  the  cost  of  produc¬ 
tion  of  commodities  is  reduced,  and,  consequently,  you  can  afford 
to  sell,  them  in  foreign  markets  at  a  cheaper  price.  If,  however, 
you  were  to  reject  the  use  of  machinery,  while  all  other  countries 
encouraged  it,  you  would  be  obliged  to  export  your  money,  in  ex¬ 
change  for  foreign  goods,  till  you  sunk  the  natural  prices  of  your 
goods  to  the  prices  of  other  countries.  In  making  your  exchanges 
with  those  countries,  you  might  give  a  commodity  which  cost  two 
days’  labour  here  for  a  commodity  which  cost  one  abroad,  and  this 
disadvantageous  exchange  would  be  the  consequence  of  your  own 
act,  for  the  commodity  which  you  export,  and  which  cost  you  two 
days’  labour,  would  have  cost  you  only  one  if  you  had  not  rejected 
the  use  of  machinery,  the  services  of  which  your  neighbours  had 
more  wisely  appropriated  to  themselves. 


CHAPTER  XXXII. 


MR  MALTHUS’S  OPINIONS  ON  RENT. 

Although  the  nature  of  rent  has  in  the  former  pages  of  this  work 
been  treated  on  at  some  length,  yet  I  consider  myself  bound  to 
notice  some  opinions  on  the  subject  which  appear  to  me  erroneous, 
and  which  are  the  more  important  as  they  are  found  in  the  writings 
of  one  to  whom,  of  all  men  of  the  present  day,  some  branches  of 
economical  science  are  the  most  indebted.  Of  Mr  Maltluis’s  Essay 
on  Population,  I  am  happy  in  the  opportunity  here  afforded  me  of 
expressing  my  admiration.  The  assaults  of  the  opponents  of  this 
great  work  have  only  served  to  prove  its  strength ;  and  I  am  per 
jouaded  that  its  just  reputation  will  spread  with  the  cultivation  oi 
that  science  of  which  it  is  so  eminent  an  ornament.  Mr  Malthus, 
too,  has  satisfactorily  explained  the  principles  of  rent,  and  showed 
that  it  rises  or  falls  in  proportion  to  the  relative  advantages,  either 
of  fertility  or  situation,  of  the  different  lands  in  cultivation,  and  has 
thereby  thrown  much  light  on  many  difficult  points  connected  with 
the  subject  of  rent,  which  were  before  either  unknown,  or  very 
imperfectly  understood ;  yet  he  appears  to  me  to  have  fallen  into 
some  errors,  which  his  authority  makes  it  the  more  necessary, 
whilst  his  characteristic  candour  renders  it  less  unpleasing,  to  notice. 
One  of  these  errors  lies  in  supposing  rent  to  be  a  clear  gain,  and  a 
new  creation  of  riches. 

I  do  not  assent  to  all  the  opinions  of  Mr  Buchanan  concerning 
rent;  but  with  those  expressed  in  the  following  passage,  quoted 
from  his  work  by  Mr  Malthus,  I  fully  agree,  and  therefore  I  must 
dissent  from  Mr  Malthus’s  comment  on  them. 

“  In  this  view  it  (rent)  can  form  no  general  addition  to  the  stock 
of  the  community,  as  the  neat  surplus  in  question  is  nothing  more 
than  a  revenue  transferred  from  one  class  to  another;  and  from  the 
mere  circumstance  of  its  thus  changing  hands,  it  is  clear  that  no 
fund  can  arise  out  of  which  to  pay  taxes.  The  revenue  which  pays 
for  the  produce  of  the  land  exists  already  in  the  hands  of  those  who 
purchase  that  produce ;  and  if  the  price  of  subsistence  were  lower, 
it  would  still  remain  in  their  hands,  where  it  would  be  just  as 
available  for  taxation  as  when,  by  a  higher  pi'icc,  it  is  transferred 
to  the  landed  proprietor.” 

After  various  observations  on  the  difference  between  raw  prodxxce 


24  i 


lllt  MALI  HUS  S 


and  manufactured  commodities,  Mr  Malthus  asks,  “  Is  it  possible, 
then,  with  M.  de  Sismondi,  to  regard  rent  as  the  sole  produce  of 
labour,  which  has  a  value  purely  nominal,  and  the  mere  result  of 
that  augmentation  of  price  which  a  seller  obtains  in  consequence  of 
a  peculiar  privilege ;  or,  with  Mr  Buchanan,  to  consider  it  as  no 
addition  to  the  national  wealth,  but  merely  a  transfer  of  value, 
advantageous  only  to  the  landlords,  and  proportionably  injurious  to 
the  consumers?”* 

I  have  already  expressed  my  opinion  on  this  subject  in  treating 
of  rent,  and  have  now  only  further  to  add,  that  rent  is  a  creation  of 
value,  as  I  understand  that  word,  but  not  a  creation  of  wealth.  If 
the  price  of  corn,  from  the  difficulty  of  producing  any  portion  of  it, 
should  rise  from  41.  to  51.  per  quarter,  a  million  of  quarters  will  be 
of  the  value  of  5,000,000/.  instead  of  4,000,000/.,  and  as  this  corn 
will  exchange  not  only  for  inoi'e  money,  but  for  more  of  every  other 
commodity,  the  possessors  will  have  a  greater  amount  of  value; 
and  as  no  one  else  will,  in  consequence,  have  a  less,  the  society 
altogether  will  be  possessed  of  greater  value,  and,  in  that  sense,  rent 
is  a  creation  of  value.  But  this  value  is  so  far  nominal  that  it  adds 
nothing  to  the  wealth,  that  is  to  say,  the  necessaries,  conveniences, 
and  enjoyments  of  the  society.  We  should  have  precisely  the  same 
quantity,  and  no  more  of  commodities,  and  the  same  million  quar¬ 
ters  of  corn  as  before ;  but  the  effect  of  its  being  rated  at  51.  per 
quarter  instead  of  4/.,  would  be  to  transfer  a  portion  of  the  value 
of  the  corn  and  commodities  from  their  former  possessors  to  the 
landlords.  Rent,  then,  is  a  creation  of  value,  but  not  a  creation  of 
wealth  ;  it  adds  nothing  to  the  resources  of  a  country ;  it  does  not 
enable  it  to  maintain  fleets  and  armies  ;  for  the  country  would  have 
a  greater  disposable  fund  if  its  land  were  of  a  better  quality,  and  it 
could  employ  the  same  capital  without  generating  a  rent. 

It  must  then  be  admitted  that  Mr  Sismondi  and  Mr  Buchanan, 
for  both  their  opinions  are  substantially  the  same,  were  correct 
when  they  considered  rent  as  a  value  purely  nominal,  and  as  forming 
no  addition  to  the  national  wealth,  but  merely  as  a  transfer  of  value, 
advantageous  only  to  the  landlords,  and  proportionably  injurious  to 
the  consumer. 

In  another  part  of  Mr  Malthus’s  “Inquiry”  he  observes,  “that 
the  immediate  cause  of  rent  is  obviously  the  excess  of  price  above 
the  cost  of  production  at  which  raw  produce  sells  in  the  market;” 
and,  in  another  place,  be  says,  “  that  the  causes  of  the  high  pried 
of  raw  produce  may  be  stated  to  be  three  : — 

“  First,  and  mainly,  that  quality  of  the  earth,  by  which  it  car 
be  made  to  yield  a  greater  portion  of  the  necessaries  of  life  that 
is  required  for  the  maintenance  of  the  persons  employed  on  the 
land. 

“  2dly.  That  quality,  peculiar  to  the  necessaries  of  life,  of  being 


An  Inquiry  into  the  Nature,  ma  Progress  of  Eent,  y.  15. 


OPINIONS  ON  RENT. 


245 


able  to  create  their  own  demand,  or  to  raise  up  a  number 
of  demanders  in  proportion  to  the  quantity  of  necessaries  pro¬ 
duced. 

“  And  3dly.  The  comparative  scarcity  of  the  most  fertile  land." 
In  speaking  of  the  high  price  of  corn,  Mr  Malthus  evidently  does 
not  mean  the  price  per  quarter  or  per  bushel,  but  rather  the  excess 
of  price  for  which  the  whole  produce  will  sell,  above  the  cost  of  its 
production,  including  always  in  the  term  “cost  of  its  production,” 
profits  as  well  as  wages.  One  hundred  and  fifty  quarters  of  corn  at 
3/.  10s.  per  quarter,  would  yield  a  larger  rent  to  the  landlord  than 
100  quarters  at  4/.,  provided  the  cost  of  production  were  in  both 
cases  the  same. 

High  price,  if  the  expression  be  used  in  this  sense,  cannot  then 
be  called  a  cause  of  rent;  it  cannot  be  said  “that  the  immediate 
cause  of  rent  is  obviously  the  excess  of  price  above  the  cost  of  pro¬ 
duction,  at  which  raw  produce  sells  in  the  market,”  for  that  excess 
is  itself  rent.  Kent,  Mr  Malthus  has  defined  to  be  “  that  portion 
of  the  value  of  the  whole  produce  which  remains  to  the  owner  of 
the  land,  after  all  the  outgoings  belonging  to  its  cultivation,  of 
whatever  kind,  have  been  paid,  including  the  profits  of  the  capital 
employed,  estimated  according  to  the  usual  and  ordinary  rate  of 
the  profits  of  agricultural  stock  at  the  time  being.”  Now,  whatever 
sum  this  excess  may  sell  for,  is  money  rent;  it  is  what  Mr  Malthus 
means  by  “  the  excess  of  price  above  the  cost  of  production  at  which 
raw  produce  sells  in  the  market ;”  and,  therefore,  in  an  inquiry  into 
the  causes  which  may  elevate  the  price  of  raw  produce,  compared 
with  the  cost  of  production,  we  are  inquiring  into  the  causes  which 
may  elevate  rent. 

In  reference  to  the  first  cause  which  Mr  Malthus  has  assigned 
for  the  rise  of  rent,  namely,  “  that  quality  of  the  earth  by  which  it 
can  be  made  to  yield  a  greater  portion  of  the  necessaries  of  life  than 
is  required  for  the  maintenance  of  the  persons  employed  on  the  land,” 
he  makes  the  following  observations  :  “  We  still  want  to  know  why 
the  consumption  and  supply  are  such  as  to  make  the  price  so  greatly 
exceed  the  cost  of  production,  and  the  main  cause  is  evidently  the 
fertility  of  the  earth  in  producing  the  necessaries  of  life.  Diminish 
this  plenty,  diminish  the  fertility  of  the  soil,  and  the  excess  will 
diminish  ;  diminish  it  still  further,  and  it  will  disappear.”  True, 
the  excess  of  necessaries  will  diminish  and  disappear,  but  that  is 
not  the  question.  The  question  is,  whether  the  excess  of  their 
price  above  the  cost  of  their  production  will  diminish  and  disappear, 
for  it  is  on  this  that  money  rent  depends.  Is  Mr  Malthus  warranted 
in  his  inference,  that  because  the  excess  of  quantity  will  diminish 
and  disappear,  therefore  “  the  cause  of  the  high  price  of  the  neces¬ 
saries  of  iife  above  the  cost  of  production  is  to  be  found  in  their 
abundance,  rather  than  in  their  scarcity  ;  and  is  not  only  essentially 
different  from  the  high  price  occasioned  by  artificial  monopolies, 
but  from  the  high  price  of  those  peculiar  products  of  the  earth,  not 


246 


MR  MALTHUS’S 


connected  with  food,  which  may  be  called  natural  and  necessary 
monopolies  ?” 

Are  there  no  circumstances  under  which  the  fertility  of  the  land, 
and  the  plenty  of  its  produce  may  be  diminished,  without  occasion¬ 
ing  a  diminished  excess  of  its  price  above  the  cost  of  production, 
that  is  to  say,  a  diminished  rent  ?  If  there  are,  Mr  Malthus’s  pro¬ 
position  is  much  too  universal;  for  he  appears  to  me  to  state  it  as 
a  general  principle,  true  under  nil  circumstances,  that  rent  will  rise 
with  the  increased  fertility  of  the  land,  and  will  fall  with  its 
diminished  fertility. 

Mr  Malthus  would  undoubtedly  be  right,  if,  of  any  given  farm, 
in  proportion  as  the  land  yielded  abundantly,  a  greater  share  of  the 
whole  produce  Avere  paid  to  the  landlord  ;  but  the  contrary  is  the 
fact  :  Avhen  no  other  but  the  most  fertile  land  is  in  cultivation,  the 
landlord  has  the  smallest  proportion  of  the  whole  produce,  as  yvell 
as  the  smallest  value,  and  it  is  only  when  inferior  lands  are  required 
to  feed  an  augmenting  population,  that  both  the  landlord’s  share  of 
the  Avhole  produce,  and  the  value  he  receives,  progressively  increase. 

Suppose  that  the  demand  is  for  a  million  of  quarters  of  corn,  and 
that  they  are  the  produce  of  the  land  actually  in  cultivation.  Now, 
suppose  the  fertility  of  all  the  land  to  be  so  diminished,  that  the 
very  same  lands  will  yield  only  900,000  quarters.  The  demand 
being  for  a  million  of  quarters,  the  price  of  corn  would  rise,  and 
recourse  must  necessarily  be  had  to  land  of  an  inferior  quality 
sooner  than  if  the  superior  land  had  continued  to  produce  a  million 
of  quarters.  But  it  is  this  necessity  of  taking  inferior  land  into 
cultivation  which  is  the  cause  of  the  rise  of  rent,  and  va  ill  elevate 
it,  although  the  quantity  of  corn  received  by  the  landlord,  be 
reduced  in  quantity.  Bent,  it  must  be  remembered,  is  not  in  pro¬ 
portion  to  the  absolute  fertility  of  the  land  in  cultivation,  but  in 
proportion  to  its  relative  fertility.  Whatever  cause  may  drive 
capital  to  inferior  land,  must  elevate  rent  on  the  superior  land  ;  the 
cause  of  rent  being,  as  stated  by  Mr  Malthus  in  his  third  proposi¬ 
tion,  “  the  comparative  scarcity  of  the  most  fertile  land.”  The 
price  of  corn  will  naturally  rise  with  the  difficulty  of  producing  the 
last  portions  of  it,  and  the  value  of  the  Avhole  quantity  produced  on 
a  particular  farm  will  be  increased,  although  its  quantity  be  dimi¬ 
nished  ;  but  as  the  cost  of  production  will  not  increase  on  the  more 
fertile  land,  as  wages  and  profits  taken  together  will  continue  always 
of  the  same  value,*  it  is  evident  that  the  excess  of  price  above  the 
cost  of  production,  or,  in  other  Avords,  rent,  must  rise  with  the 
diminished  fertility  of  the  land,  unless  it  is  counteracted  by  a  great 
reduction  of  capital,  population,  and  demand.  It  does  not  appear, 
then,  that  Mr  Malthus’s  proposition  is  correct :  rent  does  not  imme- 

*  See  page  66,  where  I  have  endeavoured  to  show,  that  whatever  facility  or  diffi¬ 
culty  there  may  be  in  the  production  of  corn,  wages  and  profits  together  will  he  ol 
the  same  value.  When  wages  rise,  it  is  always  at  the  expense  of  profits,  and  when 
they  fall,  profits  always  rise. 


OriNIONS  ON  RENT. 


247 


diately  and  necessarily  rise  or  fall  with  the  increased  or  diminished 
fertility  of  the  land  ;  but  its  increased  fertility  renders  it  capable 
of  paying  at  some  future  time  an  augmented  rent.  Land  possessed 
of  very  little  fertility  can  never  bear  any  rent;  land  of  moderate 
fertility  may  be  made,  as  population  increases,  to  bear  a  moderate 
rent ;  and  land  of  great  fertility  a  high  rent ;  but  it  is  one  thing  to 
be  able  to  bear  a  high  rent,  and  another  thing  actually  to  pay  it. 
Rent  may  be  lower  in  a  country  where  lands  are  exceedingly  fertile 
than  in  a  country  where  they  yield  a  moderate  return,  it  being  in 
proportion  rather  to  relative  than  absolute  fertility — to  the  value  of 
the  produce,  and  not  to  it3  abundance.* 

Mr  Malthus  supposes  that  the  rent  on  land  yielding  those  pecu¬ 
liar  products  of  the  earth  which  may  be  called  natural  and  necessary 
monopolies,  is  regulated  by  a  principle  essentially  different  from 
that  which  regulates  the  rent  of  land  that  yields  the  necessaries  of 
life.  He  thinks  that  it  is  the  scarcity  of  the  products  of  the  first 
which  is  the  cause  of  a  high  rent,  but  that  it  is  the  abundance  of 
the  latter,  which  produces  the  same  effect. 

This  distinction  does  not  appear  to  me  to  be  well  founded  ;  for 
you  would  as  surely  raise  the  rent  of  land  yielding  scarce  wines,  as 
the  rent  of  corn  land,  by  increasing  the  abundance  of  its  produce, 
if,  at  the  same  time,  the  demand  for  this  peculiar  commodity  in¬ 
creased  ;  and  without  a  similar  increase  of  demand,  an  abundant 
supply  of  corn  would  lower  instead  of  raise  the  rent  of  corn  land. 
Whatever  the  nature  of  the  land  may  be,  high  rent  must  depend 
on  the  high  price  of  the  produce  ;  but,  given  the  high  price,  rent 
must  be  high  in  proportion  to  abundance  and  not  to  scarcity. 

w  e  are  under  no  necessity  of  producing  permanently  any  greater 
quantity  of  a  commodity  than  that  which  is  demanded.  If  by 
accident  any  greater  quantity  were  produced,  it  would  fall  below 
its  natural  price,  and  therefore  would  not  pay  the  cost  of  produc¬ 
tion,  including  in  that  cost  the  usual  and  ordinary  profits  of  stock  : 
thus  the  supply  would  be  checked  till  it  conformed  to  the  demand, 
and  the  market  price  rose  to  the  natural  price. 

Mr  Malthus  appears  to  me  to  be  too  much  inclined  to  think  that 
population  is  only  increased  by  the  previous  provision  of  food, — 
“  that  it  is  food  that  creates  its  own  demand,” — that  it  is  by  first 
providing  food,  that  encouragement  is  given  to  marriage,  instead  ot 
considering  that  the  general  progress  of  population  is  affected  by 
the  increase  of  capital,  the  consequent  demand  for  labour,  and  the 


*  Mr  Malthus  has  observed  in  a  late  publication,  that  I  have  misunderstood  him 
in  this  passage,  as  he  did  not  mean  to  say,  that  rent  immediately  and  necessarily  rises 
and  falls  with  the  increased  or  diminished  fertility  of  the  land.  If  so,  I  certainly  did 
misunderstand  him.  Mr  Malthus’s  words  are,  “  Diminish  this  plenty,  diminish  the 
fertility  of  the  soil,  and  the  excess  (rent)  will  diminish  ;  diminish  it  still  further,  and 
it  will  disappear.”  Mr  Malthus  does  not  state  his  proposition  conditionally,  but 
absolutely.  I  contended  against  what  I  understood  him  to  maintain,  that  a  diminu¬ 
tion  of  the  fertility  of  the  soil  was  incompatible  with  an  increase  of  reut. 


248 


MR  MALTHUS’S 


rise  of  wages ;  and  that  the  production  of  food  is  but  the  effect  of 
that  demand. 

It  is  by  giving  the  workmen  more  money,  or  any  other  commo¬ 
dity  in  which  wages  are  paid,  and  which  has  not  fallen  in  value, 
that  his  situation  is  improved.  The  increase  of  population,  and  the 
increase  of  food  will  generally  be  the  effect,  but  not  the  necessary 
effect  of  high  wages.  The  amended  condition  of  the  labourer,  in 
consequence  of  the  increased  value  which  is  paid  him,  does  not 
necessarily  oblige  him  to  marry  and  take  upon  himself  the  charge 
of  a  family — he  will,  in  all  probability,  employ  a  portion  of  his 
increased  wages  in  furnishing  himself  abundantly  with  food  and 
necessaries, — but  with  the  remainder  he  may,  if  it  please  him,  pur¬ 
chase  any  commodities  that  may  contribute  to  his  enjoyments — 
chairs,  tables,  and  hardware  ;  or  better  clothes,  sugar,  and  tobacco. 
His  increased  wages,  then,  will  be  attended  with  no  other  effect  than 
an  increased  demand  for  some  of  those  commodities ;  and  as  the 
race  of  labourers  will  not  be  materially  increased,  his  wages  will 
continue  permanently  high.  But  although  this  might  be  the  con¬ 
sequence  of  high  wages,  yet  so  great  are  the  delights  of  domestic 
society,  that,  in  practice,  it  is  invariably  found  that  an  increase  of 
population  follows  the  amended  condition  of  the  labourer ;  and  it 
is  only  because  it  does  so,  that,  with  the  trifling  exception  already 
mentioned,  a  new  and  increased  demand  arises  for  food.  This 
demand,  then,  is  the  effect  of  an  increase  of  capital  and  population, 
but  not  the  cause — it  is  only  because  the  expenditure  of  the  people 
takes  this  direction,  that  the  market  price  of  necessaries  exceeds 
the  natural  price,  and  that  the  quantity  of  food  required  is  pro¬ 
duced  ;  and  it  is  because  the  number  of  people  is  increased,  that 
wages  again  fall. 

What  motive  can  a  farmer  have  to  produce  more  corn  than  is 
actually  demanded,  when  the  consequence  would  be  a  depression  of 
its  market  price  below  its  natural  price,  and  consequently  a  priva¬ 
tion  to  him  of  a  portion  of  his  profits,  by  reducing  them  below  the 
general  rate  ?  u  If,”  says  Mr  Malthus,  “  the  necessaries  of  life,  the 
most  important  products  of  land,  had  not  the  property  of  creating 
an  increase  of  demand  proportioned  to  their  increased  quantity, 
such  increased  quantity  would  occasion  a  fall  in  their  exchangeable 
value.*  However  abundant  might  be  the  produce  of  the  country, 
its  population  might  remain  stationary  ;  and  this  abundance  without 
a  proportionate  demand,  and  with  a  very  high  corn  price  of  labour, 
which  would  naturally  take  place  under  these  circumstances,  might 
reduce  the  price  of  raw  produce,  like  the  price  cf  manufactures,  to 
the  cost  of  production.” 

Might  reduce  the  price  of  raw  produce  to  the  cost  of  production. 
Is  it  ever  for  any  length  of  time  either  above  or  below  this  price  ? 

*  Of  what  increased  quantity  does  Mr  Malthus  speak  ?  Who  is  to  produce  it  ? 
Who  can  have  any  motive  to  produce  it  before  any  demand  exists  for  an  additional 
quantity  ? 


OriNIONS  ON  RENT 


249 


Does  not  Mr  Malthus  himself  state  it  never  to  he  so?  “I  hope,” 
he  says,  “  to  be  excused  for  dwelling  a  little,  and  presenting  to  the 
reader,  in  various  forms,  the  doctrine  that  corn,  in  reference  to  the 
quantity  actually  produced ,  is  sold  at  its  necessary  price  like  manu¬ 
factures,  because  I  consider  it  as  a  truth  of  the  highest  importance, 
which  has  been  overlooked  by  the  economists,  by  Adam  Smith,  and 
all  those  writers,  who  have  represented  raw  produce  as  selling 
always  at  a  monopoly  price.” 

“  Every  extensive  country  may  thus  be  considered  as  possessing 
a  gradation  of  machines  for  the  production  of  corn  and  raw  ma¬ 
terials,  including  in  this  gradation  not  only  all  the  various  qualities 
of  poor  land,  of  which  every  territory  has  generally  an  abundance, 
but  the  inferior  machinery,  which  may  be  said  to  be  employed  when 
good  land  is  further  and  further  forced  for  additional  produce.  As 
the  price  of  raw  produce  continues  to  rise,  these  inferior  machines 
are  successively  called  into  action  ;  and  as  the  price  of  raw  produce 
continues  to  fall,  they  are  successively  thrown  out  of  action.  The 
illustration  here  used  serves  to  show  at  once  the  necessity  of  the 
actual  price  of  corn  to  the  actual  produce ,  and  the  different  effect 
which  would  attend  a  great  reduction  in  the  price  of  any  particular 
manufacture,  and  a  great  reduction  in  the  price  of  raw  produce.”* 

How  are  these  passages  to  be  reconciled  to  that  which  affirms, 
that  if  the  necessaries  of  life  had  not  the  property  of  creating  an 
increase  of  demand  proportioned  to  their  increased  quantity,  the 
abundant  quantity  produced  would  then,  and  then  only,  reduce  the 
price  of  raw  produce  to  the  cost  of  production  ?  If  corn  is  never 
under  its  natural  price,  it  is  never  more  abundant  than  the  actual 
population  require  it  to  be  for  their  own  consumption  ;  no  store 
can  be  laid  up  for  the  consumption  of  others ;  it  can  never,  then, 
by  its  cheapness  and  abundance  be  a  stimulus  to  population.  In 
proportion  as  corn  can  be  produced  cheaply,  the  increased  wages  of 
the  labourers  will  have  more  power  to  maintain  families.  In 
America  population  increases  rapidly  because  food  can  be  produced 
at  a  cheap  price,  and  not  because  an  abundant  supply  has  been 
previously  provided.  In  Europe  population  increases  comparatively 
slowly,  because  food  cannot  be  produced  at  a  cheap  value.  In  the 

*  Inquiry,  &c.  “  In  all  progressive  countries,  the  average  price  of  corn  is  never 

higher  than  what  is  necessary  to  continue  the  average  increase  of  produce.” — Obser¬ 
vations,  p.  21. 

“  In  the  employment  of  fresh  capital  upon  the  land,  to  provide  for  the  wants  of  an 
increasing  population,  whether  this  fresh  capital  is  employed  in  bringing  more  land 
under  the  plough,  or  improving  land  already  in  cultivation,  the  main  question  always 
depends  upon  the  expected  returns  of  this  capital ;  and  no  part  of  the  gross  profits 
can  be  diminished  without  diminishing  the  motive  to  this  mode  of  employing  it. 
Evenr  diminution  of  price  not  fully  and  immediately  balanced  by  a  proportionate  fall 
in  all  the  necessary  expenses  of  a  farm,  every  tax  on  the  land,  every  tax  on  fanning 
stock,  every  tax  on  the  necessaries  of  farmers,  will  tell  in  the  computation  ;  and  if, 
after  all  these  outgoings  are  allowed  for,  the  price  of  the  produce  will  uot  leave  a  fair 
remuneration  for  the  capital  employed,  according  to  the  general  rate  of  profits,  and  a 
rent  at  least  equal  to  the  rent  of  the  land  in  its  former  state,  no  sufficient  motive  can 
exist  to  undertake  the  projected  improvement.” — Observations,  p.  22. 


250 


MR  MALTHUS’S 


usual  and  ordinary  course  of  things,  the  demand  for  all  commodities 
precedes  their  supply.  By  saying  that  corn  would,  like  manufac¬ 
tures,  sink  to  its  price  of  production,  if  it  conld  not  raise  up  de- 
manders,  Mr  Malthus  cannot  mean  that  all  rent  would  be  absorbed  ; 
for  he  has  himself  justly  remarked,  that  if  all  rent  were  given  up 
by  the  landlords,  corn  would  not  fall  in  price;  rent  being  the  effect, 
and  not  the  cause  of  high  price,  and  there  being  always  one  quality 
of  land  in  cultivation  which  pays  no  rent  whatever,  the  corn  from 
which  replaces  by  its  price  only  wages  and  profits. 

In  the  following  passage,  Mr  Malthus  has  given  an  able  exposi¬ 
tion  of  the  causes  of  the  rise  in  the  price  of  raw  produce  in  rich  and 
progressive  countries,  in  every  word  of  which  I  concur ;  but  it 
appears  to  me  to  be  at  variance  with  some  of  the  propositions  main¬ 
tained  by  him  in  his  Essay  on  Rent.  “  I  have  no  hesitation  in 
stating  that,  independently  of  the  irregularities  in  the  currency  of 
a  country,  and  other  temporary  and  accidental  circumstances,  the 
cause  of  the  high  comparative  money  price  of  corn  is  its  high  com¬ 
parative  real  price ,  or  the  greater  quantity  of  capital  and  labour 
which  must  be  employed  to  produce  it ;  and  that  the  reasons  why 
the  real  price  of  corn  is  higher,  and  continually  rising  in  countries 
which  are  already  rich,  and  still  advancing  in  prosperity  and 
population,  is  to  be  found  in  the  necessity  of  resorting  constantly 
to  poorer  land,  to  machines  which  require  a  greater  expenditure  to 
work  them,  and  which  consequently  occasion  each  fresh  addition 
to  the  raw  produce  of  the  country  to  be  purchased  at  a  greater 
cost ;  in  short,  it  is  to  be  found  in  the  important  truth,  that  corn 
in  a  progressive  country  is  sold  at  a  price  necessary  to  yield  the 
actual  supply ;  and  that,  as  this  supply  becomes  more  and  more 
difficult,  the  price  rises  in  proportion.” 

The  real  price  of  a  commodity  is  here  properly  stated  to  depend 
on  the  greater  or  less  quantity  of  labour  and  capital  (that  is, 
accumulated  labour)  which  must  be  employed  to  produce  it.  Real 
price  does  not,  as  some  have  contended,  depend  on  money  value ; 
nor,  as  others  have  said,  on  value  relatively  to  corn,  labour,  or  any 
other  commodity  taken  singly,  or  to  all  commodities  collectively ; 
but,  as  Mr  Malthus  justly  says,  “  on  the  greater  (or  less)  quantity 
of  capital  and  labour  which  must  be  employed  to  produce  it.” 

Among  the  causes  of  the  rise  of  rent,  Mr  Malthus  mentions, 
u  such  an  increase  of  population  as  will  lower  the  Avages  of  labour.” 
But  if,  as  the  wages  of  labour  fall,  the  profits  of  stock  rise,  and  they 
be  together  always  of  the  same  value,*  no  fall  of  wages  can  raise 
rent,  for  it  will  neither  diminish  the  portion,  nor  the  value  of  the 
portion  of  the  produce  which  will  be  allotted  to  the  farmer  and 
labourer  together ;  and,  therefore,  will  not  leave  a  larger  portion, 
nor  a  larger  value  for  the  landlord.  In  proportion  as  less  is  appro¬ 
priated  for  wages,  more  will  be  appropriated  for  profits,  and  vice 


OPINIONS  ON  RENT. 


251 


versa.  This  division  will  be  settled  by  the  farmer  and  his  labourers, 
without  any  interference  of  the  landlord  ;  and,  indeed,  it  is  a  matter 
in  which  he  can  have  no  interest,  otherwise  than  as  one  division 
may  be  more  favourable  than  another,  to  new  accumulations,  and 
to  a  further  demand  for  land.  If  wages  fell,  profits,  and  not  rent, 
would  rise.  If  wages  rose,  profits,  and  not  rent,  would  fall.  The 
rise  of  rent  and  wages,  and  the  fall  of  profits,  are  generally  the 
inevitable  effects  of  the  same  cause — the  increasing  demand  for 
food,  the  increased  quantity  of  labour  required  to  produce  it,  and  its 
consequently  high  price.  If  the  landlord  were  to  forego  his  whole 
rent,  the  labourers  would  not  be  in  the  least  benefited.  If  it  were 
possible  for  the  labourers  to  give  up  their  whole  wages,  the  landlords 
would  derive  no  advantage  from  such  a  circumstance  ;  but  in  both 
cases  the  farmers  would  receive  and  retain  all  which  they  relinquish. 
It  has  been  my  endeavour  to  show'  in  this  work,  that  a  fall  of  wages 
would  have  no  other  effect  than  to  raise  profits.  Every  rise  of 
profits  is  favourable  to  the  accumulation  of  capital,  and  to  the 
further  increase  of  population,  and  therefore  would,  in  all  probability, 
ultimately  lead  to  an  increase  of  rent. 

Another  cause  of  the  rise  of  rent,  according  to  Mr  Malthus,  is 
“  such  agricultural  improvements  or  such  increase  of  exertions,  as 
will  diminish  the  number  of  labourers  necessary  to  produce  a  given 
effect.”  To  this  passage  I  have  the  same  objection  that  I  had 
against  that  which  speaks  of  the  increased  fertility  of  land  being 
the  cause  of  an  immediate  rise  of  rent.  Both  the  improvement  in 
agriculture,  and  the  superior  fertility,  will  give  to  the  land  a  capa¬ 
bility  of  bearing  at  some  future  period  a  higher  rent,  because  with 
the  same  price  of  food  there  will  be  a  great  additional  quantity ; 
but  till  the  increase  of  population  be  in  the  same  proportion,  the 
additional  quantity  of  food  would  not  be  required,  and,  therefore, 
rents  would  be  lowered  and  not  raised.  The  quantity  that  could 
under  the  then  existing  circumstances  be  consumed,  could  be 
furnished  either  with  fewTer  hands,  or  with  a  less  quantity  of  land, 
the  price  of  raw'  produce  would  fall,  and  capital  would  be  withdrawn 
from  the  land.*  Nothing  can  raise  rent,  but  a  demand  for  new 
land  of  an  inferior  quality,  or  some  cause  which  shall  occasion  an 
alteration  in  the  relative  fertility  of  the  land  already  under  cultiva¬ 
tion.!  Improvements  in  agriculture,  and  in  the  division  of  labour, 

*  See  p.  43,  &c. 

t  It  is  not  necessary  to  state,  on  every  occasion,  but  it  must  be  always  understood, 
that  the  same  results  will  follow,  as  far  as  regards  the  price  of  raw  produce  and  the 
vise  of  rents,  whether  an  additional  capital  of  a  given  amount,  be  employed  on  new 
land,  for  which  no  rent  is  paid,  or  on  land  already  in  cultivation,  if  the  produce 
obtained  from  both  be  precisely  the  same  in  quantity.— See  p.  37. 

M.  Say,  in  his  notes  to  the  French  translation  of  this  work,  has  endeavoured  to 
"How  that  there  is  not  at  any  time  land  in  cultivation  which  does  not  pay  a  rent,  and 
having  satisfied  himself  on  this  point,  he  concludes  that  he  has  overturned  all  the. 
conclusions  which  result  from  that  doctrine.  He  infers,  for  example,  that  I  am  not 
correct  in  saying  that  taxes  on  corn,  and  other  raw  produce,  by  elevating  their  price, 
fall  on  the  consumer,  and  do  not  fall  on  rent.  He  contends  that  such  taxes  must  1U11 


252 


MR  MALTHUS’S 


are  common  to  all  land  ;  they  increase  the  absolute  quantity  of  raw 
produce  obtained  from  each,  but  probably  do  not  much  disturb  the 
relative  proportions  which  before  existed  between  them. 

Mr  Malthus  has  justly  commented  on  the  error  of  Dr  Smith’s 
argument,  that  corn  is  of  so  peculiar  a  nature,  that  its  production 
cannot  be  encouraged  by  the  same  means  that  the  production  of  all 
other  commodities  is  encouraged.  He  observes,  “  It  is  by  no  means 
intended  to  deny  the  powerful  influence  of  the  price  of  corn  upon 
the  price  of  labour,  on  an  average  of  a  considerable  number  of  years ; 
but  that  this  influence  is  not  such  as  to  prevent  the  movement  of 
capital  to,  or  from  the  land,  which  is  the  precise  point  in  question, 
will  be  made  sufficiently  evident,  by  a  short  inquiry  into  the  manner 
in  which  labour  is  paid,  and  brought  into  the  market,  and  by  a 
consideration  of  the  consequences  to  which  the  assumption  of  Adam 
Smith’s  proposition  would  inevitably  lead.’’* 

/  Mr  Malthus  then  proceeds  to  show,  that  demand  and  high  price 
’will  as  effectually  encourage  the  production  of  raw  produce  as  the 
demand  and  high  price  of  any  other  commodity  will  encourage  its 
production.  In  this  view  it  will  be  seen,  from  what  I  have  said  of 
the  effects  of  bounties,  that  I  entirely  concur.  I  have  noticed  the 
passage  from  Mr  Malthus’s  “  Observations  on  the  Corn  Laws,”  for 
the  purpose  of  showing  in  what  a  different  sense  the  term  real  price 
is  used  here,  and  in  his  other  pamphlet,  entitled  “  Grounds  of  an 
Opinion,”  &c.  In  this  passage  Mr  Malthus  tells  us,  that  “  it  is 
clearly  an  increase  of  real  price  alone  which  can  encourage  the 
production  of  corn,”  and,  by  real  price,  he  evidently  means  the 
increase  in  its  value  relatively  to  all  other  things,  or,  in  other  words, 
the  rise  in  its  market  above  its  natural  price,  or  the  cost  of  its 
production.  If  by  I'eal  price  this  is  what  is  meant,  although  I  do 
not  admit  the  propriety  of  thus  naming  it,  Mr  Malthus’s  opinion  is 
undoubtedly  correct ;  it  is  the  rise  in  the  market  price  of  corn 
which  alone  encourages  its  production ;  for  it  may  be  laid  down  as 
a  principle  uniformly  true,  that  the  only  great  encouragement  to 
the  increased  production  of  a  commodity  is  its  market  value  ex¬ 
ceeding  its  natural  or  necessary  value. 

But  this  is  not  the  meaning  which  Mr  Malthus,  on  other  occasions, 
attaches  to  the  term  real  price.  In  the  Essay  on  Rent,  Mr  Malthus 
says,  by  “  the  real  growing  price  of  corn  1  mean  the  real  quantity 
of  labour  and  capital  which  has  been  employed  to  produce  the  last 
additions  which  have  been  made  to  the  national  produce.”  In 
another  part  he  states  u  the  cause  of  the  high  comparative  real 
price  of  corn  to  be  the  greater  quantity  of  capital  and  labour  which 

on  rent.  But  before  M.  Say  can  establish  the  correctness  of  this  inference,  he  must 
also  show  that  there  is  not  any  capital  employed  on  the  land  for  which  no  rent  is  paid 
(see  the  beginning  of  this  note,  and  pages  34  and  38  of  the  present  work)  ;  now  this 
ne  has  not  attempted  to  do.  In  no  part  of  his  notes  has  he  refuted,  or  even  noticed 
that  important  doctrine.  By  his  note  to  page  182  of  the  second  volume  of  the  French 
edition,  he  does  not  appear  to  be  aware  that  it  has  even  been  advanced. 

*  Observations  on  the  Corn  Laws,  p.  4. 


OPINIONS  ON  RENT. 


253 


must  be  employed  to  produce  it.”*  Suppose  that,  in  the  foregoing 
passage,  we  were  to  substitute  this  definition  of  real  price,  would  it 
not  then  run  thus? — “  It  is  clearly  the  increase  in  the  quantity  of 
labour  and  capital  which  must  be  employed  to  produce  corn,  which 
alone  can  encourage  its  production.”  This  would  be  to  say,  that 
it  is  clearly  the  rise  in  the  natural  or  necessary  price  of  corn  which 
encourages  its  production — a  proposition  which  could  not  be  main¬ 
tained.  It  is  not  the  price  at  which  corn  can  be  produced  that  has 
any  influence  on  the  quantity  produced,  but  the  price  at  which  it 
can  be  sold.  It  is  in  proportion  to  the  degree  of  the  difference  of 
its  price  above  or  below  the  cost  of  production  that  capital  is 
attracted  to  or  repelled  from  the  land.  If  that  excess  be  such  as 
to  give  to  capital  so  employed  a  greater  than  the  general  profit 
of  stock,  capital  will  go  to  the  land ;  if  less,  it  will  be  withdrawn 
from  it. 

It  is  not,  then,  by  an  alteration  in  the  real  price  of  corn  that  its 
production  is  encouraged,  but  by  an  alteration  in  its  market  price. 
It.  is  not  “  because  a  greater  quantity  of  capital  and  labour  must  be 
employed  to  produce  it  (Mr  Malthus’s  just  definition  of  real  price), 
that  more  capital  and  labour  are  attracted  to  the  land,  but  because 
the  market  price  rises  above  this,  its  real  price,  and,  notwithstanding 
the  increased  charge,  makes  the  cultivation  of  land  the  more  pro¬ 
fitable  employment  of  capital.” 

Nothing  can  be  more  just  than  the  following  observations  of  Mr 
Mai  thus,  on  Adam  Smith’s  standard  of  value.  “  Adam  Smith  was 
evidently  led  into  this  train  of  argument  from  his  habit  of  consider¬ 
ing  labour  as  the  standard  measure  of  value,  and  corn  as  the  measure 
of  labour.  But  that  corn  is  a  very  inaccurate  measure  of  labour, 
the  history  of  our  own  country  will  amply  demonstrate ;  where 
labour,  compared  with  corn,  will  be  found  to  have  experienced  very 
great  and  striking  variations,  not  only  from  year  to  year,  but  from 
century  to  century,  and  for  ten,  twenty,  and  thirty  years  together. 
And  that  neither  labour  nor  any  other  commodity  can  be  an  accurate 
measure  of  reed  value  in  exchange,  is  now  considered  as  one  of  the 
most  incontrovertible  doctrines  of  political  economy,  and,  indeed, 
follows  from  the  very  definition  of  value  in  exchange.” 

If  neither  corn  nor  labour  are  accurate  measures  of  real  value  in 
exchange,  which  they  clearly  are  not,  what  other  commodity  is? — 
certainly  none.  If,  then,  the  expression,  real  price  of  commodities, 
have  any  meaning,  it  must  be  that  which  Mr  Malthus  has  stated 
in  the  Essay  on  Bent — it  must  be  measured  by  the  proportionate 
quantity  of  capital  and  labour  necessary  to  produce  them. 

In  Mr  Malthus’s  “  Inquiry  into  the  Nature  of  Bent,”  he  says, 

*  Upon  showing  this  passage  to  Mr  Malthus,  at  the  time  when  these  papers  were 
going  to  the  press,  he  observed,  “that  in  these  two  instances  he  had  inadvertently 
used  the  term  real  price ,  instead  of  cost  of  production.  It  will  he  seen,  from  what  I 
have  already  said,  that  to  me  it  appears  that  in  these  two  instances  lie  has  used  the 
term  real  price  in  its  true  and  just  acceptation,  and  that  in  the  former  case  onlv  it  is 
incorrectly  applied. 


254 


MR  MALTMUS’S 


“that,  independently  of  irregularities  in  the  currency  of  a  country, 
and  other  temporary  and  accidental  circumstances,  the  cause  of 
the  high  comparative  money  price  of  corn  is  its  high  comparative 
real  price,  or  the  greater  quantity  of  capital  and  labour  which  must  be 
employed  to  produce  it.”* 

This,  I  apprehend,  is  the  correct  account  of  all  permanent  varia¬ 
tions  in  price,  whether  of  corn  or  of  any  other  commodity.  A 
commodity  can  only  permanently  rise  in  price,  either  because  a 
greater  quantity  of  capital  and  labour  must  be  employed  to  produce 
it,  or  because  money  has  fallen  in  value ;  and,  on  the  contrary,  it 
can  only  fall  in  price,  either  because  a  less  quantity  of  capital  and 
labour  may  be  employed  to  produce  it,  or  because  money  has  risen 
in  value. 

A  variation  arising  from  the  latter  of  these  alternatives,  an  altered 
value  of  money,  is  common  at  once  to  all  commodities  :  but  a  varia¬ 
tion  arising  from  the  former  cause,  is  confined  to  the  particular 
commodity  requiring  more  or  less  labour  in  its  production.  By 
allowing  the  free  importation  of  corn,  or  by  improvements  in  agri¬ 
culture,  raw  produce  would  fall;  but  the  price  of  no  other  commo¬ 
dity  would  be  affected,  except  in  proportion  to  the  fall  in  the  real 
value,  or  cost  of  production,  of  the  raw  produce,  which  entered  into 
iis  composition. 

Mr  Malthus,  having  acknowledged  this  principle,  cannot,  I  think, 
consistently  maintain  that  the  whole  money  value  of  all  the  commo¬ 
dities  in  the  country  must  sink  exactly  in  proportion  to  the  fall  in 
the  price  of  corn.  If  the  corn  consumed  in  the  country  were  of 
the  value  of  10  millions  per  annum,  and  the  manufactured  and 
foreign  commodities  consumed  were  of  the  value  of  20  millions, 
making  altogether  30  millions,  it  would  not  be  admissible  to  infer 
that  the  annual  expenditure  was  reduced  to  15  millions,  because 
corn  had  fallen  50  per  cent.,  or  from  10  to  5  millions. 

The  value  of  the  raw  produce  which  entered  into  the  composition 
-of  these  manufactures  might  not,  for  example,  exceed  20  per  cent, 
of  their  whole  value,  and,  therefore,  the  fall  in  the  value  of  manu¬ 
factured  commodities,  instead  of  being  from  20  to  10  millions,  would 
be  only  from  20  to  18  millions ;  and  after  the  foil  in  the  price  of 
corn  of  50  per  cent.,  the  whole  amount  of  the  annual  expenditure, 
instead  of  falling  from  30  to  15  millions,  would  fall  from  30  to  23 
millions. t 

This,  I  say,  would  be  their  value,  if  you  supposed  it  possible,  that 
with  such  a  cheap  price  of  corn,  no  more  corn  and  commodities 
would  be  consumed  ;  but  as  all  those  who  had  employed  capital  in 

*  Page  40. 

t  Manufactures,  indeed,  could  not  fall  in  any  such  proportion,  because,  under  the 
circumstances  supposed,  there  would  be  a  new  distribution  of  the  precious  metals 
among  the  different  countries.  Our  cheap  commodities  would  be  exported  in  ex¬ 
change  for  com  and  gold,  till  the  accumulation  of  gold  should  lower  its  value,  and 
raise  the  money  price  of  commodities. 


OPINIONS  ON  RENT. 


255 


the  production  of  corn  on  those  lands  which  would  no  longer  be 
cultivated,  could  employ  it  in  the  production  of  manufactured 
goods ;  and  only  a  part  of  those  manufactured  goods  would  be 
given  in  exchange  for  foreign  corn,  as  on  any  other  supposition  no 
advantage  would  be  gained  by  importation  and  low  prices ;  we 
should  have  the  additional  value  of  all  that  quantity  of  manu¬ 
factured  goods  which  were  so  produced,  and  not  exported  to  add 
to  the  above  value,  so  that  the  real  diminution,  even  in  money 
value,  of  all  the  commodities  in  the  country,  corn  included,  would 
be  equal  only  to  the  loss  of  the  landlords,  by  the  reduction  of  their 
rents,  while  the  quantity  of  objects  of  enjoyment  would  be  greatly 
increased. 

Instead  of  thus  considering  the  effect  of  a  fall  in  the  value  of  raw 
produce,  as  MrMalthus  was  bound  to  do  by  his  previous  admission, 
he  considers  it  as  precisely  the  same  thing  as  a  rise  of  100  per  cent, 
in  the  value  of  money,  and,  therefore,  argues  as  if  all  commodities 
would  sink  to  half  their  former  price. 

“ During  the  twenty  years  beginning  with  1794,”  he  says,  “and 
ending  with  1813,  the  average  price  of  British  corn  per  quarter  was 
about  83  shillings;  during  the  ten  years  ending  with  1813,  92  shil¬ 
lings;  and  during  the  last  five  years  of  the  twenty,  108  shillings. 
In  the  course  of  these  twenty  years,  the  Government  borrowed  near 
500  millions  of  real  capital ;  for  which,  on  a  rough  average,  exclu¬ 
sive  of  the  sinking  fund,  it  engaged  to  pay  about  5  per  cent.  But 
if  corn  should  fall  to  50  shillings  a  quarter,  and  other  commodities 
in  proportion,  instead  of  an  interest  of  about  5  per  cent.,  the 
Government  would  really  pay  an  interest  of  7,  8,  9,  and,  for  the  last 
200  millions,  10  per  cent. 

“  To  this  extraordinary  generosity  towards  the  stockholders  I 
should  be  disposed  to  make  no  kind  of  objection,  if  it  were  not 
necessary  to  consider  by  whom  it  is  to  be  paid  ;  and  a  moment’s 
reflection  will  show  us  that  it  can  only  be  paid  by  the  industrious 
classes  of  society  and  the  landlords,  that  is,  by  all  those  whose  nominal 
income  will  vary  with  the  variations  in  the  measure  of  value.  The 
nominal  revenues  of  this  part  of  the  society,  compared  with  the 
average  of  the  last  five  years,  will  be  diminished  one  half,  and  out 
of  this  nominally  reduced  income,  they  will  have  to  pay  the  same 
nominal  amount  of  tax^s.”* 

In  the  first  place,  -  think  I  have  already  shown,  that  even  the 
value  of  the  gross  income  of  the  whole  country  will  not  be  dimi¬ 
nished  in  the  proportion  for  which  Mr  Malthus  here  contends;  it 
would  not  follow,  that  because  corn  fell  50  per  cent.,  each  man’s 
gross  income  would  be  reduced  50  per  cent,  in  value  ;f  his  net 
income  might  be  actually  increased  in  value. 


*  The  Grounds  of  an  Opinion,  &c.,  p.  36. 

t  Mr  Malthus,  in  another  part  ot  the  same  work,  supposes  commodities  to  varj 
25  or  20  per  cent,  when  corn  varies  33-p 


MR  MALTIIUS'S 


256 

In  the  second  place,  I  think  the  reader  will  agree  with  me  that 
the  increased  charge,  if  admitted,  would  not  fall  exclusively  “  on 
the  landlords  and  the  industrious  classes  of  society the  stock¬ 
holder,  by  his  expenditure,  contributes  his  share  to  the  support  of 
the  public  burdens  in  the  same  way  as  the  other  classes  of  society. 
If,  then,  money  became  really  more  valuable,  although  he  would 
receive  a  greater  value,  he  would  also  pay  a  greater  value  in  taxes, 
and,  therefore,  it  cannot  be  true  that  the  whole  addition  to  the  real 
value  of  the  interest  would  be  paid  by  “  the  landlords  and  the 
industrious  classes.” 

S'  The  whole  argument,  however,  of  Mr  Malthus,  is  built  on  an 
infirm  basis:  it  supposes,  because  the  gross  income  of  the  country 
is  diminished,  that,  therefore,  the  net  income  must  also  be  dimi¬ 
nished  in  the  same  proportion.  It  has  been  one  of  the  objects  of 
this  work  to  show,  that,  with  every  fall  in  the  real  value  of  neces¬ 
saries,  the  wages  of  labour  would  fall,  and  that  the  j^rofits  of  stock 
woidd  rise  ;  in  other  words,  that  of  any  given  annual  value  a  less 
portion  would  be  paid  to  the  labouring  class,  and  a  larger  portion 
to  those  whose  funds  employed  this  class.  Suppose  the  value  of 
the  commodities  produced  in  a  particular  manufacture  to  be  1000/., 
and  to  be  divided  between  the  master  and  his  labourers  in  the 
proportion  of  800/.  to  labourers,  and  200/.  to  the  master;  if  the 
value  of  these  commodities  should  fall  to  900/.,  and  100/.  be  saved 
from  the  wages  of  labour,  in  consequence  of  the  fall  of  necessaries, 
the  net  income  of  the  master  would  be  in  no  degree  impaired,  and, 
therefore,  he  could  with  just  as  much  facility  pay  the  same  amount 
of  taxes  after  as  before  the  reduction  of  price.* 

It  is  of  importance  to  distinguish  clearly  between  gross  revenue 
and  net  revenue,  for  it  is  from  the  net  revenue  of  a  society  that  all 
taxes  must  be  paid.  Suppose  that  all  the  commodities  in  the 
country,  all  the  corn,  raw  produce,  manufactured  goods,  &c.,  which 
could  be  brought  to  market  in  the  course  of  the  year,  were  of  the 
value  of  20  millions,  and  that  in  order  to  obtain  this  value,  the 
labour  of  a  certain  number  of  men  was  necessary,  and  that  the 
absolute  necessaries  of  these  labourers  required  an  expenditure  of 
10  millions  ;  I  should  say  that  the  gross  revenue  of  such  society 
was  20  millions,  and  its  net  revenue  10  millions.  It  does  not 
follow  from  this  supposition  that  the  labourers  should  receive  only 
10  millions  for  their  labour  ;  they  might  receive  12,  14,  or  15 
millions,  and  in  that  case  they  would  have  2,  4,  or  5  millions  of  the 
net  income.  The  rest  would  be  divided  between  landlords  and 

*  Of  net  produce  and  gross  produce,  M.  Say  speaks  as  follows  : — “The  whole  value 
produced  is  the  gross  produce ;  this  value,  after  deducting  from  it  the  cost  of  produc¬ 
tion,  is  the  net  produce.” — Yol.  ii.  p.  491.  There  can,  then,  he  no  net  produce,  because 
the  cost  of  production,  according  to  M.  Say,  consists  of  rent,  wages,  and  profits.  In 
page  508,  he  says,  “  the  value  of  a  product,  the  value  of  a  productive  service,  the 
value  of  the  cost  of  production,  are  all,  then,  similar  values,  whenever  tilings  are  left 
to  tueir  natural  course.”  Take  a  whole  from  a  whole  and  nothing  remains. 


OPINIONS  ON  KENT. 


25? 


capitalists;  but  the  whole  net  income  would  not  exceed  10 millions. 
Suppose  such  a  society  paid  2  millions  in  taxes,  its  net  income 
would  be  reduced  to  8  millions. 

Suppose  now  money  to  become  more  valuable  by  one-tenth,  all 
commodities  would  fall,  and  the  price  of  labour  would  fall,  because 
the  absolute  necessaries  of  the  labourer  formed  a  part  of  those 
commodities,  consequently  the  gross  income  would  be  reduced  to 
18  millions,  and  the  net  income  to  9  millions.  If  the  taxes  fell  in 
the  same  proportion,  and,  instead  of  2  millions,  1,800,000/.  only 
were  raised,  the  net  income  would  be  further  reduced  to  7,200,000/., 
precisely  of  the  same  value  as  the  8  millions  were  before,  and  there¬ 
fore  the  society  would  neither  be  losers  nor  gainers  by  such  an  event. 
But  suppose  that  after  the  rise  of  money,  2  millions  were  raised  for 
taxes  as  before,  the  society  would  be  poorer  by  200,000/.  per 
annum,  their  taxes  would  be  really  raised  one-ninth.  To  alter  the 
money  value  of  commodities,  by  altering  the  value  of  money,  and 
yet  to  raise  the  same  money  amount  by  taxes,  is  then  undoubtedly 
to  increase  the  burthens  of  society. 

But  suppose  of  the  10  millions  net  revenue,  the  landlords  received 
five  millions  as  rent,  and  that  by  facility  of  production,  or  by  the 
importation  of  corn,  the  necessary  cost  of  that  article  in  labour  was 
reduced  1  million,  rent  would  fall  1  million,  and  the  prices  of  the 
mass  of  commodities  would  also  fall  to  the  same  amount,  but  the 
net  revenue  would  be  just  as  great  as  before;  the  gross  income 
would,  it  is  true,  be  only  19  millions,  and  the  necessary  expendi 
ture  to  obtain  it  9  millions,  but  the  net  income  would  be  10  millions. 
Now,  suppose  2  millions  raised  in  taxes  on  this  diminished  gross 
income,  would  the  society  altogether  be  richer  or  poorer?  Richer, 
certainly  ;  for  after  the  payment  of  their  taxes,  they  would  have,  as 
before,  a  clear  income  of  8  millions  to  bestow  on  the  purchase  of 
commodities,  which  had  increased  in  quantity,  and  fallen  in  price, 
in  the  proportion  of  20  to  19  ;  not  only  then  could  the  same  taxa¬ 
tion  be  endured,  but  greater,  and  yet  the  nn  of  the  people  be 
better  provided  with  conveniences  and  necessaries. 

If  the  net  income  of  the  society,  after  paying  the  same  money 
taxation,  be  as  great  as  before,  and  the  class  of  landholders  lose 
1  million  from  a  fall  of  rent,  the  other  productive  classes  must  have 
increased  money  incomes,  notwithstanding  the  fall  of  prices.  The 
capitalist  will  then  be  doubly  benefited ;  the  corn  and  butcher’s 
meat  consumed  by  himself  and  his  family  will  be  reduced  in  price 
and  the  wages  of  his  menial  servants,  of  his  gardeners,  and  labourers 
of  all  descriptions,  will  be  also  lowered.  Ilis  horses  and  cattle  will 
cost  less,  and  be  supported  at  a  less  expense.  All  the  commodities 
in  which  raw  produce  enters  as  a  principal  part  of  their  value,  w  ill 
fall.  This  aggregate  amount  of  savings,  made  on  the  expenditure 
of  income,  at  the  same  time  that  his  money  income  is  increased, 
will  then  he  doubly  beneficial  to  him,  and  will  enable  him  not  only 
to  add  to  his  enjoyments,  but  to  bear  additional  taxes,  if  they  should 

u 


258 


MR  MALTII  US’S 


be  required  :  liis  additional  consumption  of  taxed  commodities  will 
much  more  than  make  up  for  the  diminished  demand  of  landlords, 
consequent  on  the  reduction  of  their  rents.  The  same  observations 
apply  to  farmers  and  traders  of  every  description. 

But  it  may  be  said,  that  the  capitalist’s  income  will  not  be  in¬ 
creased  ;  that  the  million  deducted  from  the  landlord’s  rent,  will 
be  paid  in  additional  wages  to  labourers  !  Be  it  so  ;  this  will  make 
no  difference  in  the  argument :  the  situation  of  the  society  will  be 
improved,  and  they  will  be  able  to  bear  the  same  money  burthens 
with  greater  facility  than  before  ;  it  will  only  prove  what  is  still 
more  desirable,  that  the  situation  of  another  class,  and  by  far  the 
most  important  class  in  society,  is  the  one  which  is  chiefly  bene¬ 
fited  by  the  new  distribution.  All  that  they  receive  more  than  9 
millions,  forms  part  of  the  net  income  of  the  country,  and  it  cannot 
be  expended  without  adding  to  its  revenue,  its  happiness,  or  its 
power.  Distribute,  then,  the  net  income  as  you  please.  Give  a 
little  more  to  one  class,  and  a  little  less  to  another,  yet  you  do  not 
thereby  diminish  it ;  a  greater  amount  of  commodities  will  be  still 
produced  with  the  same  labour,  although  the  amount  of  the  gross 
money  value  of  such  commodities  will  be  diminished  ;  but  the  net 
money  income  of  the  country,  that  fund  from  which  taxes  are  paid 
and  enjoyments  procured,  would  be  much  more  adequate,  than 
before,  to  maintain  the  actual  population,  to  afford  it  enjoyments 
and  luxuries,  and  to  support  any  given  amount  of  taxation. 

That  the  stockholder  is  benefited  by  a  great  fall  in  the  value  of 
corn,  cannot  be  doubted  ;  but  if  no  one  else  be  injured,  that  is  no 
reason  why  corn  should  be  made  dear ;  for  the  gains  of  the  stock¬ 
holder  are  national  gains,  and  increase,  as  all  other  gains  do,  the 
real  wealth  and  power  of  the  country.  If  they  are  unjustly  bene¬ 
fited,  let  the  degree  in  which  they  are  so  be  accurately  ascertained, 
and  then  it  is  for  the  Legislature  to  devise  a  remedy ;  but  no  policy 
can  be  more  unwise  than  to  shut  ourselves  out  from  the  great 
advantages  arising  from  cheap  corn,  and  abundant  productions, 
merely  because  the  stockholder  would  have  an  undue  proportion  of 
the  increase. 

To  regulate  the  dividends  on  stock  by  the  money  value  of  corn, 
has  never  yet  been  attempted.  If  justice  and  good  faith  required 
such  a  regulation,  a  great  debt  is  due  to  the  old  stockholders  ;  for 
they  have  been  receiving  the  same  money  dividends  for  more  than 
a  century,  although  corn  has,  perhaps,  been  doubled  or  trebled  in 
price. 

But  it  is  a  great  mistake  to  suppose,  that  the  situation  of  the 
stockholder  will  be  more  improved  than  that  of  the  farmer,  the 
manufacturer,  and  the  other  capitalists  of  the  country ;  it  will,  in 
fact,  be  less  improved. 

The  stockholder  will  undoubtedly  receive  the  same  money 
dividend,  while  not  only  the  price  of  raw  produce  and  labour  fell, 
but  the  prices  of  many  other  things  into  which  raw  produce  entered 


OPINIONS  ON  KENT. 


259 


as  a  component  part.  This,  however,  is  an  advantage,  as  I  have 
just  stated,  which  he  would  enjoy  in  common  with  all  other  per¬ 
sons  who  had  the  same  money  incomes  to  expend  : — his  money 
income  would  not  be  increased  ;  that  of  the  farmer,  manufacturer, 
and  other  employers  of  labour  would,  and  consequently  they  would 
be  doubly  benefited. 

It  may  be  said,  that  although  it  may  be  true  that  capitalists 
would  be  benefited  by  a  rise  of  profits,  in  consequence  of  a  fall  of 
wages,  yet  that  their  incomes  would  be  diminished  by  the  fall  in 
the  money  value  of  their  commodities.  What  is  to  lower  them  ? 
Not  any  alteration  in  the  value  of  money,  for  nothing  has  been 
supposed  to  occur  to  alter  the  value  of  money.  Not  any  diminu¬ 
tion  in  the  quantity  of  labour  necessary  to  produce  their  commo¬ 
dities,  for  no  such  cause  has  operated,  and  if  it  did  operate,  would 
not  lower  money  profits,  though  it  might  lower  money  prices. 
But  the  raw  produce  of  which  commodities  are  made,  is  supposed 
to  have  fallen  in  price,  and,  therefore,  commodities  will  fall  on  that 
account.  True,  they  will  fall,  but  their  fall  will  not  be  attended 
with  any  diminution  in  the  money  income  of  the  producer.  If  he 
sell  his  commodity  for  less  money,  it  is  only  because  one  of  the 
materials  from  which  it  is  made  has  fallen  in  value.  If  the  clothier 
sell  his  cloth  for  900/.  instead  of  1000/.,  his  income  will  not  be  less, 
if  the  wool  from  which  it  is  made  has  declined  100/.  in  value. 

Mr  Malthus  says,  “  It  is  true,  that  the  last  additions  to  the  agri¬ 
cultural  produce  of  an  improving  country,  are  not  attended  with  a 
large  proportion  of  rent ;  and  it  is  precisely  this  circumstance  that 
may  make  it  answer  to  a  rich  country  to  import  some  of  its  corn, 
if  it  can  be  secure  of  obtaining  an  equable  supply.  But  in  all  cases 
the  importation  of  foreign  corn  must  fail  to  answer  nationally,  if  it 
is  not  so  much  cheaper  than  the  corn  that  can  be  grown  at  home, 
as  to  equal  both  the  profits  and  the  rent  of  the  grain  which  it  dis¬ 
places.” — Grounds,  tyc.  p.  3fi. 

In  this  observation  Mr  Malthus  is  quite  correct;  but  imported 
corn  must  be  always  so  much  cheaper  than  the  corn  that  can  be 
grown  at  home,  “  as  to  equal  both  the  profits  and  the  rent  of  the 
grain  which  it  displaces.”  If  it  were  not,  no  advantage  to  any  one 
could  be  obtained  by  importing  it. 

•As  rent  is  the  effect  of  the  high  price  of  corn,  the  loss  of  rent  is 
the  effect  of  a  low  price.  Foreign  corn  never  enters  into  compe¬ 
tition  with  such  home  corn  as  affords  a  rent ;  the  fall  of  price 
invariably  affects  the  landlord  till  the  whole  of  his  rent  is  absorbed  ; 
—if  it  fall  still  more,  the  price  will  not  afford  even  the  common 
profits  of  stock  ;  capital  will  then  quit  the  land  for  some  other  em¬ 
ployment,  and  the  corn  which  was  before  grown  upon  it  will  then, 
anti  not  till  then,  be  imported.  From  the  loss  of  rent,  there  will 
be  a  loss  of  value,  of  estimated  money  value,  but  there  will  be  a 
gain  of  wealth.  The  amount  of  the  raw  produce  and  other  produc¬ 
tions  together  will  be  increased ;  from  the  greater  facility  with 


2  GO 


MR  MALTHUS’S  OPINIONS  ON  RENT. 


which  they  arc  produced,  they  will,  though  augmented  in  quantity, 
he  diminished  in  value. 

Two  men  employ  equal  capitals — one  in  agriculture,  the  other 
in  manufactures.  That  in  agriculture  produces  a  net  annual  value 
of  1,200/.,  of  which  1000/.  is  retained  for  profit,  and  200/.  is  paid 
for  rent ;  the  other  in  manufactures  produces  only  an  annual  value, 
of  1000/.  Suppose  that,  by  importation,  the  same  quantity  of  corn 
which  cost  1,200/.  can  be  obtained  for  commodities  which  cost  950/., 
and  that,  in  consequence,  the  capital  employed  in  agriculture  is 
diverted  to  manufactures,  where  it  can  produce  a  value  of  1000/., 
the  net  revenue  of  the  country  will  be  of  less  value,  it  will  be  reduced 
from  2,200/.  to  20001. ;  but  there  will  not  only  be  the  same  quantity 
of  commodities  and  corn  for  its  own  consumption,  but  also  as  much 
addition  to  that  quantity  as  50/.  would  purchase,  the  difference 
between  the  value  at  which  its  manufactures  were  sold  to  the 
foreign  country,  and  the  value  of  the  corn  which  was  purchased 
from  it. 

Now  this  is  precisely  the  question  respecting  the  advantage  of 
importing  or  growing  corn ;  it  never  can  be  imported  till  the 
quantity  obtained  from  abroad  by  the  employment  of  a  given 
capital  exceeds  the  quantity  which  the  same  capital  will  enable  us 
to  grow  at  home, — exceeds  not  only  that  quantity  which  falls  to 
the  share  of  the  farmer,  but  also  that  which  is  paid  as  rent  to  the 
landlord. 

Mr  Malthus  says,  “  It  has  been  justly  observed  by  Adam  Smith, 
that  no  equal  quantity  of  productive  labour  employed  in  manufac¬ 
tures  can  ever  occasion  so  great  a  reproduction  as  in  agriculture.” 
If  Adam  Smith  speaks  of  value,  he  is  correct;  but  if  he  speaks  of 
riches,  which  is  the  important  point,  he  is  mistaken  ;  for  he  has 
himself  defined  riches  to  consist  of  the  necessaries,  conveniences, 
and  enjoyments  of  human  life.  One  set  of  necessaries  and  con¬ 
veniences  admits  of  no  comparison  with  another  set;  value  in  use 
cannot  be  measured  by  any  known  standard  ;  it  is  differently  esti¬ 
mated  by  different  persons. 


THE  HIGH  PRICE 


OF 

BULLION 


A  rROOF  OF  THE 


DEPRECIATION  OF  RANK  NOTES. 


TIIE  FOURTH  EDITION. 


WITH  AN  APPENDIX. 


LONDON. 


HIGH  PRICE  OF  BULLION. 


The  precious  metals  employed  for  circulating  the  commodities  of 
the  world,  previously  to  the  establishment  of  banks,  have  been 
supposed  by  the  most  approved  writers  on  political  economy  to  have 
been  divided  into  certain  proportions  among  the  different  civilized 
nations  of  the  earth,  according  to  the  state  of  their  commerce  and 
wealth,  and  therefore  according  to  the  number  and  frequency  of  the 
payments  which  they  had  to  perform.  While  so  divided  they 
preserved  every  where,  the  same  value,  and  as  each  country  had  an 
equal  necessity  for  the  quantity  actually  in  use,  there  could  be  no 
temptation  offered  to  either  for  their  importation  or  exportation. 

^  Gold  and  silver,  like  other  commodities,  have  an  intrinsic  value, 
which  is  not  arbitrary,  but  is  dependent  on  their  scarcity,  the  ^ 
quantity  of  labour  bestowed  in  procuring  them,  and  the  value  of 
the  capital  employed  in  the  mines  which  produce  them.  ^ 

( u  The  quality  of  utility,  beauty,  and  scarcity,”  says  Dr  Smith, 
■'■'are  the  original  foundation  of  the  high  price  of  those  metals  ^r  of 
the  great  quantity  of  other  goods  for  which  they  can  every  where 
be  exchanged.  This  value  was  antecedent  to,  and  independent  of, 
their  being  employed  as  coin,  and  was  the  quality  which  fitted  them 
for  that  employment.” 

It  If  the  quantity  of  gold  and  silver  in  the  world  employed  as  money 
were  exceedingly  small,  or  abundantly  great,  it  would  not  in  the 
least  affect  the  proportions  in  which  they  would  be  divided  among 
the  different  nations-Mhe  variation  in  their  quantity  would  have 
produced  no  other  effect  than  to  make  the  commodities  for  which  A 
they  were  exchanged  comparatively  dear  or  cheap.  The  smaller 
quantity  of  money  would  perform  the  functions  of  a  circulating 
medium,  as  well  as  the  larger.)  Ten  millions  would  be  as  effectual 
for  that  purpose  as  100  millions.  Dr  Smith  observes,  “  that 
the  most  abundant  mines  of  the  precious  metals  would  add  little 
to  the  wealth  of  the  world.  A  produce  of  which  the  value  is 
principally  derived  from  its  scarcity  is  necessarily  degraded  by  its 
abundance.” 

If  in  the  progress  towards  wealth,  one  nation  advanced  more 
rapidly  than  the  others,  that  nation  would  require  and  obtain  a 


264 


niGH  PRICE  OF  BULLION. 


greater  proportion  of  the  money  of  the  world.  Its  commerce,  its 
commodities,  and  its  payments,  would  increase,  and  the  general 
currency  of  the  world  would  be  divided  according  to  the  new  pro¬ 
portions.  All  countries,  therefore,  would  contribute  their  share  to 
this  effectual  demand. 

In  the  same  manner,  if  any  nation  wasted  part  of  its  wealth, 
or  lost  part  of  its  trade,  it  could  not  retain  the  same  quantity  of 
circulating  medium  which  it  before  possessed.  A  part  would  be 
exported,  and  divided  among  the  other  nations  till  the  usual  pro¬ 
portions  were  re-established. 

While  the  relative  situation  of  countries  continued  unaltered, 
they  might  have  abundant  commerce  with  each  other,  but  their 
exports  and  imports  would  on  the  whole  be  equal.  England  might 
possibly  import  more  goods  from,  than  she  would  export  to,  France, 
but  she  would  in  consequence  export  more  to  some  other  country, 
and  France  would  import  more  from  that  country;  so  that  the 
exports  and  imports  of  all  countries  would  balance  each  other ;  bills 
of  exchange  would  make  the  necessary  payments,  but  no  money 
would  pass  because  it  would  have  the  same  value  in  all  countries. 

If  a  mine  of  gold  were  discovered  in  either  of  these  countries, 
the  currency  of  that  country  would  be  lowered  in  value  in  conse¬ 
quence  of  the  increased  quantity  of  the  precious  metals  brought 
into  circulation,  and  would  therefore  no  longer  be  of  the  same  value 
as  that  of  other  countries.  /  Gold  and  silver,  whether  in  coin  or  in 
bullion,  obeying  the  law  which  regulates  all  other  commodities, 
would  immediately  become  articles  of  exportation  ;  they  would 
leave  the  country  where  they  were  cheap,  for  those  countries  where 
they  were  dear,  and  would  continue  to  do  so,  as  long  as  the  mine 
should  prove  productive,  and  till  the  proportion  existing  between 
capital  and  money  in  each  country  before  the  discovery  of  the  mine, 
were  again  established,  and  gold  and  silver  restored  every  where  to 
one  value.  In  return  for  the  gold  exported,  commodities  woidd  be 
imported;  and  though  what  is  usually  termed  the  balance  of  trade 
would  be  against  the  country  exporting  money  or  bullion,  it  would 
be  evident  that  she  was  carrying  on  a  most  advantageous  trade, 
exporting  that  which  was  no  way  useful  to  her,  for  commodities 
which  might  be  employed  in  the  extension  of  her  manufactures, 
and  the  increase  of  her  wealth. 

\  If  instead  of  a  mine  being  discovered  in  any  country,  a  bank  were 
established,  such  as  the  Bank  of  England,  with  the  power  of  issuing 
its  notes  for  a  circulatin'!'’  medium  ;  after  a  lar£re  amount  had  been 
issued,  either  by  way  of  loan  to  merchants,  or  by  advances  to  Govern¬ 
ment,  thereby  adding  considerably  to  the  sum  of  the,  currency,  the 
same  effect  would  follow  as  in  the  case  of  the  mine.  The  circulat¬ 
ing  medium  would  be  lowered  in  value,  and  goods  would  experience 
a  proportionate  rise.  The  equilibrium  between  that  and  other 
nations  would  only  be  restored  by  the  exportation  of  part  of  the  coin.  ^ 

The  establishment  of  the  bank,  and  the  consequent  issue  of  its 


HIGH  rniCE  OF  BULLION. 


265 

notes,  therefore,  as  well  as  the  discovery  of  the  mine,  operate  as  an 
inducement  to  the  exportation  either  of  bullion,  or  of  coin,  and  are 
beneficial  only  in  as  far  as  that  object  may  be  accomplished.  The 
bank  substitutes  a  currency  of  no  value  for  one  most  costly,  and 
enables  us  to  turn  the  precious  metals  (which,  though  a  very  neces¬ 
sary  part  of  our  capital,  yield  no  revenue),  into  a  capital  which  will 
yield  one.  Dr  A.  Smith  compares  the  advantages  attending  the 
establishment  of  a  bank  to  those  which  would  be  obtained  by  con¬ 
verting  our  highways  into  pastures  and  corn  fields,  and  procuring 
a  road  through  the  air.  The  highways,  like  the  coin,  are  highly 
useful,  but  neither  yield  any  revenue.  Some  people  might  be 
alarmed  at  the  specie  leaving  the  country,  and  might  consider  that 
as  a  disadvantageous  trade  which  required  us  to  part  with  it ;  indeed 
the  law  so  considers  it  by  its  enactments  against  the  exportation 
of  specie ;  but  a  very  little  reflection  will  convince  us  that  it  is  our 
choice,  and  not  our  necessity,  that  sends  it  abroad ;  and  that  it  is 
highly  beneficial  to  us  to  exchange  that  commodity  which  is  super¬ 
fluous,  for  others  which  may  be  made  productive. 

The  exportation  of  the  specie  may  at  all  times  be  safely  left  to 
the  discretion  of  individuals ;  it  will  not  be  exported  more  than  any 
other  commodity,  unless  its  exportation  should  be  advantageous  to 
the  country.  If  it  be  advantageous  to  export  it,  no  laws  can  effec¬ 
tually  prevent  its  exportation.  Happily,  in  this  case,  as  well  as  in 
most  others  in  commerce,  where  there  is  free  competition,  the  in¬ 
terests  of  the  individual  and  that  of  the  community  are  never  at 
variance. 

AVere  it  possible  to  carry  the  law  against  melting,  or  exporting 
of  coin,  into  strict  execution,  at  the  same  time  that  the  exportation 
of  gold  bullion  was  freely  allowed,  no  advantage  could  accrue  from 
it,  but  great  injury  must  arise  to  those  who  might  have  to  pay, 
possibly,  two  ounces  or  more  of  coined  gold  for  one  of  uncoined 
gold.  This  would  be  a  real  depreciation  of  our  currency,  raising 
the  prices  of  all  other  commodities  in  the  same  proportion  as  it 
increased  that  of  gold  bullion.  The  owner  of  money  would  in  this 
case  suffer  an  injury  equal  to  what  a  proprietor  of  corn  would  suffer, 
were  a  law  to  be  passed  prohibiting  him  from  selling  his  corn  for 
more  than  half  its  market  value.  The  law  against  the  exportation 
of  the  coin  has  this  tendency,  but  is  so  easily  evaded,  that  gold  in 
bullion  has  always  been  nearly  of  the  same  value  as  gold  in  coin. 

Thus,  then,  it  appears  that  the  currency  of  one  country  can  never 
for  any  length  of  time  be  much  more  valuable,  as  far  as  equal  quan¬ 
tities  of  the  precious  metals  are  concerned,  than  that  of  another ; 
that  excess  of  currency  is  but  a  relative  term  ;  that  if  the  circula¬ 
tion  of  England  were  10  millions,  that  of  France  5  millions,  that 
of  Holland  4  millions,  &c.,  &c.,  whilst  they  kept  their  proportions, 
though  the  currency  of  each  country  were  doubled  or  trebled,  neither 
country  would  be  conscious  of  an  excess  of  currency.  The  prices 
of  commodities  would  every  where  rise,  on  account  of  the  increase 


HIGH  1’IHCE  OF  BULLION'. 


2C6 

of  currency,  but  there  would  be  no  exportation  of  money  from  either, 
But  if  these  proportions  be  destroyed  by  England  alone  doubling 
her  currency,  while  that  of  F ranee,  Holland,  &c.,  &c.,  continued  as 
before,  we  should  then  be  conscious  of  an  excess  in  our  currency, 
and  for  the  same  reason  the  other  countries  would  feel  a  deficiency 
in  theirs,  and  part  of  our  excess  would  be  exported  till  the  propor¬ 
tions  of  ten,  five,  four,  &c.,  were  again  established. 
j  If  in  France  an  ounce  of  gold  were  more  valuable  than  in 
'England,  and  would  therefore  in  France  purchase  more  of  any  com¬ 
modity  common  to  both  countries,  gold  would  immediately  quit 
England  for  such  purpose,  and  we  should  send  gold  in  preference 
to  any  thing  else,  because  it  would  be  the  cheapest  exchangeable 
commodity  in  the  English  market ;  for  if  gold  be  dearer  in  France 
than  in  England,  goods  must  be  cheaper ;  we  should  not  therefore 
send  them  from  the  dear  to  the  cheap  market,  but,  on  the  contrary, 
they  would  come  from  the  cheap  to  the  dear  market,  and  would  be 
exchanged  for  our  gold.  I 

The  Bank  might  continue  to  issue  their  notes,  and  the  specie  be 
exported  with  advantage  to  the  country,  while  their  notes  were 
L  payable  in  specie  on  demand,  because  they  could  never  issue  more 
notes  than  the  value  of  the  coin  which  would  have  circulated  had 
there  been  no  bank.* 

If  they  attempted  to  exceed  this  amount,  the  excess  would  be 
I  immediately  returned  to  them  for  specie ;  because  our  currency, 
being  thereby  diminished  in  value,  could  be  advantageously  ex¬ 
ported,  and  could  not  be  retained  in  our  circulation.  These  are 
the  means,  as  I  have  already  explained,  by  which  our  currency 
endeavours  to  equalize  itself  with  the  currencies  of  other  countries. 
As  soon  as  this  equality  was  attained,  all  advantage  arising  from 
exportation  would  cease;  but  if  the  Bank,  assuming  that  because 
a  given  quantity  of  circulating  medium  had  been  necessary  last 
year,  therefore  the  same  quantity  must  be  necessary  this,  or  for 
any  other  x-eason,  continued  to  re-issue  the  returned  notes,  the 
stimulus  which  a  redundant  currency  first  gave  to  the  exportation 
of  the  coin  would  be  again  renewed  with  similar  effects ;  gold 
would  be  again  demanded,  the  exchange  would  become  unfavour- 
able,  and  gold  bullion  would  rise,  in  a  small  degi'ee,  above  its 
Mint  price,  because  it  is  legal  to  export  bullion,  but  illegal  to  export 
the  coin,  and  the  difference  would  be  about  equal  to  the  fair  com¬ 
pensation  for  the  risk. 

In  this  manner,  if  the  Bank  persisted  in  returning  their  notes 
into  circulation,  every  guinea  might  be  drawn  out  of  their  coffei’s. 

If,  to  supply  the  deficiency  of  their  stock  of  gold,  they  were  to 
purchase  gold  bullion  at  the  advanced  price,  and  have  it  coined  int ; 
guineas,  this  would  not  l’emedy  the  evil ;  guineas  would  be  still  de¬ 
manded,  but,  instead  of  being  exported,  would  be  melted,  and  sold  to 

*  They  might,  strictly  speaking,  rather  exceed  that  quantity,  because  as  the  Bank 
would  add  to  the  currency  of  the  world,  England  would  retain  its  share  of  the  increase. 


me; ii  nucE  of  bullion.  207 

the  Bank  as  bullion  at  the  advanced  price.  “  The  operations  of  the 
Bank,”  observed  Dr  Smith,  alluding  to  an  analogous  case,  “  were, 
upon  this  account,  somewhat  like  the  web  of  Penelope, — the  work 
that  was  done  in  the  day  was  undone  in  the  night.”  The  same 
sentiment  is  expressed  by  Mr  Thornton  : — “Finding  the  guineas  in 
their  coffers  to  lessen  every  day,  they  must  naturally  be  supposed 
to  be  desirous  of  replacing  them  by  all  effectual  and  not  extrava¬ 
gantly  expensive  means.  They  will  .be  disposed,  to  a  certain 
degree,  to  buy  gold,  though  at  a  losing  price,  and  to  coin  it  into 
new  guineas ;  but  they  will  have  to  do  this  at  the  very  moment 
when  many  are  privately  melting  what  is  coined.  The  one  party 
will  be  melting  and  selling  while  the  other  is  buying  and  coining. 
And  each  of  these  two  contending  businesses  will  now  be  carried 
on,  not  on  account  of  an  actual  exportation  of  each  melted  guinea 
to  Hamburgh,  but  the  operation,  or  at  least  a  great  part  of  it,  will 
be  confined  to  London,  the  coiners  and  the  melters  living  on  the 
same  spot,  and  giving  constant  employment  to  each  other. 

“  The  Bank,”  continues  Mr  Thornton,  “  if  we  suppose  it,  as  we 
now  do,  to  carry  on  this  sort  of  contest  with  the  melters,  is 
obviously  waging  a  very  unequal  war ;  and  even  though  it  should 
not  be  tired  early,  it  will  be  likely  to  be  tired  sooner  than  its 
adversaries.” 

The  Bank  would  be  obngeu,  inerefore,  ultimately  to  adopt  the 
only  remedy  in  their  power  to  put  a  stop  to  the  demand  for 
guineas.  They  would  withdraw  part  of  their  notes  from  circulation, 
till  they  should  have  increased  the  value  of  the  remainder  to  that 
of  gold  bullion,  and,  consequently,  to  the  value  of  the  currencies 
of  other  countries.  All  advantage  from  the  exportation  of  gold 
bullion  woidd  then  cease,  and  there  would  be  no  temptation  to 
exchange  bank  notes  for  guineas. 

f  In  this  view  of  the  subject,  then,  it  appears  that  the  temptation 
to  export  money  in  exchange  for  goods,  or  what  is  termed  an 
unfavourable  balance  of  trade,  never  arises  but  from  a  redundant 
currency.  But  Mr  Thornton,  who  has  considered  this  subject 
very  much  at  large,  supposes  that  a  very  unfavourable  balance  of 
trade  may  be  occasioned  to  this  country  by  a  bad  harvest,  and  the 
consequent  importation  of  corn  ;  and  that  there  may  be  at  the  same 
time  an  unwillingness  in  the  country  to  which  we  are  indebted  to 
receive  our  goods  in  payment;  the  balance  due  to  the  foreign 
country  must  therefore  be  paid  out  of  that  part  of  our  currency 
consisting  of  coin,  and  that  hence  arises  the  demand  for  gold 
bullion,  and  its  increased  price.  He  considers  the  Bank  as  afford¬ 
ing  considerable  accommodation  to  the  merchants,  by  supplying 
with  their  notes  the  void  occasioned  by  the  exportation  of  the 
specie. 

As  it  is  acknowledged  by  Mr  Thornton,  in  many  parts  of  his 
work,  that  the  price  of  gold  bullion  is  rated  in  gold  coin,  and  as  it 
is  also  acknowledged  by  him  that  the  law  against  melting  gold  coin 


HIGH  miCE  OF  BULLION. 


268 

into  bullion,  and  exporting  it,  is  easily  evaded,  it  follows,  that  no 
demand  for  gold  bullion,  arising  from  this  or  any  other  cause, 
can  raise  the  money  price  of  that  commodity.  The  error  of  this 
reasoning  proceeds  from  not  distinguishing  between  an  increase  in 
the  value  of  gold,  and  an  increase  in  its  money  price. 

If  there  were  a  great  demand  for  corn,  its  money  price  would 
advance,  because,  in  comparing  corn  with  money,  we  in  fact  com¬ 
pare  it  with  another  commodity ;  and,  for  the  same  reason,  when 
there  is  a  great  demand  for  gold,  its  corn  price  will  increase  ;  but  in 
neither  case  will  a  bushel  of  corn  be  worth  more  than  a  bushel  of 
corn,  or  an  ounce  of  gold  more  than  an  ounce  of  gold.  An  ounce 
of  gold  bullion  could  not,  whatever  the  demand  might  be,  whilst 
its  price  was  rated  in  gold  coin,  be  of  more  value  than  an  ounce  of 
coined  gold,  or  3/.  17s.  lOAd. 

If  this  argument  should  not  be  considered  as  conclusive,  I  should 
urge  that  a  void  in  the  currency,  as  here  supposed,  can  only  be 
occasioned  by  the  annihilation  or  limitation  of  paper  currency,  and 
then  it  would  speedily  be  filled  by  importations  of  bullion,  which 
its  increased  value,  in  consequence  of  the  diminution  of  circulating 
medium,  would  infallibly  attract  to  the  advantageous  market. 
However  great  the  scarcity  of  corn  might  be,  the  exportation  of 
money  would  be  limited  by  its  increasing  scarcity.  Money  is  in 
such  general  demand,  and,  in  the  present  state  of  civilization,  is  so 
essential  to  commercial  transactions,  that  it  can  never  be  exported 
to  excess ;  even  in  a  war,  such  as  the  present,  when  our  enemy 
endeavours  to  interdict  all  commerce  with  us,  the  value  which  the 
currency  would  bear  from  its  increasing  scarcity  would  prevent  the 
exportation  of  it  from  being  carried  so  far  as  to  occasion  a  void  in 
the  circulation. 

Mr  Thornton  has  not  explained  to  us  why  any  unwillingness 
should  exist  in  the  foreign  country  to  receive  our  goods  in  exchange 
for  their  corn  ;  and  it  would  be  necessary  for  him  to  show,  that  if 
such  an  unwillingness  were  to  exist,  we  should  agree  to  indulge  it 
so  far  as  to  consent  to  part  with  our  coin. 

\  If  we  consent  to  give  coin  in  exchange  for  goods,  it  must  be 
from  choice,  not  necessity.  We  should  not  import  more  goods 
than  we  export,  unless  we  had  a  redundancy  of  currency,  which  it 
therefore  suits  us  to  make  a  part  of  our  exports.  \  The  exportation 
of  the  coin  is  caused  by  its  cheapness,  and  is  not  the  effect,  but  the 
cause  of  an  unfavourable  balance :  we  should  not  export  it,  if  we 
did  not  send  it  to  a  better  market,  or  if  we  had  any  commodity 
which  we  could  export  more  profitably.  It  is  a  salutary  remedy 
for  a  redundant  currency ;  and  as  I  have  already  endeavoured  to 
prove  that  redundancy  or  excess  is  only  a  relative  term,  it  follows 
that  the  demand  for  it  abroad  arises  only  from  the  comparative 
deficiency  of  the  currency  of  the  importing  country,  which  there 
causes  its  superior  value. 

It  resolves  itself  entirely  into  a  question  of  interest.  If  the  sellers 


high  rniCE  of  bullion. 


209 


of  the  corn  to  England,  to  the  amount,  I  will  suppose,  of  a  million, 
could  import  goods  which  cost  a  million  in  England,  but  would 
produce,  when  sold  abroad,  more  than  if  the  million  had  been  sent 
in  money,  goods  would  be  preferred  ;  if  otherwise,  money  would  be 
demanded. 

It  is  only  after  a  comparison  of  the  value  in  their  markets  and  in 
our  own  of  gold  and  other  commodities,  and  because  gold  is  cheaper 
in  the  London  market  than  in  theirs,  that  foreigners  prefer  gold  in 
exchange  for  their  corn.  If  we  diminish  the  quantity  of  currency, 
we  give  an  additional  value  to  it:  this  will  induce  them  to  alter 
their  election,  and  prefer  the  commodities.  If  I  owed  a  debt  in 
Hamburgh  of  100/.,  I  should  endeavour  to  find  out  the  cheapest 
mode  of  paying  it.  If  I  send  money,  the  expense  attending  its 
transportation  being,  1  will  suppose,  5/.,  to  discharge  my  debt  will 
cost  me  105/.  If  I  purchase  cloth  here,  which,  with  the  expenses 
attending  its  exportation,  will  cost  me  106/.,  and  which  will  in 
Hamburgh  sell  for  100/.,  it  is  evidently  more  to  my  advantage  to 
send  the  money.  If  the  purchase  and  expenses  of  sending  hard¬ 
ware  to  pay  my  debt  will  take  107/.,  I  should  prefer  sending  cloth 
to  hardware,  but  I  would  send  neither  in  preference  to  money, 
because  money  would  be  the  cheapest  exportable  commodity  in 
the  London  market.  The  same  reasons  would  operate  with  the 
exporter  of  the  corn,  if  the  transaction  were  on  his  own  account. 
Hut  if  the  Bank,  “  fearful  for  the  safety  of  their  establishment,”  and 
knowing  that  the  requisite  number  of  guineas  would  be  withdrawn 
from  their  coffers  at  the  Mint  price,  should  think  it  necessary  to 
diminish  the  amount  of  their  notes  in  circulation,  the  proportion 
between  the  value  of  the  money,  of  the  cloth,  and  of  the  hardware, 
would  no  longer  be  as  105,  106,  and  107  ;  but  the  money  would 
become  the  most  valuable  of  the  three,  and  therefore  would  be  less 
advantageously  employed  in  discharging  the  foreign  debts. 

If,  which  is  a  much  stronger  case,  we  agreed  to  pay  a  subsidy  to 
a  foreign  power,  money  would  not  be  exported  whilst  there  were 
any  goods  which  could  more  cheaply  discharge  the  payment.  The 
interest  of  individuals  would  render  the  exportation  of  the  money 
unnecessary.* 

Thus,  then,  specie  will  be  sent  abroad  to  discharge  a  debt  only 
when  it  is  superabundant ;  only  when  it  is  the  cheapest  exportable 
commodity.  If  the  Bank  were  at  such  a  time  paying  their  notes 
in  specie,  gold  would  be  demanded  for  that  purpose.  It  would  be 


*  This  is  strongly  corroborated  by  the  statement  of  Mr  Rose  in  the  House  of  Com¬ 
mons,  that  our  exports  exceeded  our  imports  by  (I  believe)  1G  millions.  In  return 
for  those  exports  no  bullion  could  have  been  imported,  because  it  is  well  known  that 
the  price  of  bullion  having  been,  during  the  whole  year,  higher  abroad  than  in  this 
country,  a  large  quantity  of  our  gold  coin  has  been  exported.  To  the  value  of  the 
balance  of  exports,  therefore,  must  be  added  the  value  of  the  bullion  exported.  A 
part  of  the  amount  may  be  due  to  us  from  foreign  nations,  but  the  remainder  must 
be  precisely  equal  to  our  foreign  expenditure,  consisting  of  subsidies  to  our  allies,  and 
the  maintenance  of  our  fleets  and  armies  on  foreign  stations. 


270 


UIGII  riHCE  OF  BULLION. 


obtained  there  at  its  Mint  price,  whereas  its  price  as  bullion  would 
be  something  above  its  value  as  coin,  because  bullion  could,  and 
coin  could  not,  be  legally  exported. 

It  is  evident,  then,  that  a  depreciation  of  the  circulating  medium 
is  the  necessary  consequence  of  its  redundance  ;  and  that  in  the 
common  state  of  the  national  currency  this  depreciation  is  counter¬ 
acted  by  the  exportation  of  the  precious  metals.* 

Such,  then,  appear  to  me  to  be  the  laws  that  regulate  the  distri¬ 
bution  of  the  precious  metals  throughout  the  world,  and  which 
cause  and  limit  their  circulation  from  one  country  to  another,  by 
regulating  their  value  in  each.  But  before  I  proceed  to  examine 
on  these  principles  the  main  object  of  my  inquiry,  it  is  necessary 
that  I  should  show  what  is  the  standard  measure  of  value  in  this 
country,  and  of  which,  therefore,  our  paper  currency  ought  to  be 
the  representative,  because  it  can  only  be  by  a  comparison  to  this 
standard  that  its  regularity,  or  its  depreciation,  may  be  estimated. 

No  permanent!  measure  of  value  can  be  said  to  exist  in  any 
nation  while  the  circulating  medium  consists  of  two  metals,  because 
they  are  constantly  subject  to  vary  in  value  with  respect  to  each 
other.  However  exact  the  conductors  of  the  Mint  may  be,  in  pro¬ 
portioning  the  relative  value  of  gold  to  silver  in  the  coins,  at  the  time 
when  they  fix  the  ratio,  they  cannot  prevent  one  of  these  metals 
from  rising,  while  the  other  remains  stationary,  or  falls  in  value. 

*  It  has  been  observed,  in  a  work  of  great  and  deserved  repute,  the  Edinburgh 
Review,  Yob  i.  p.  183,  that  an  increase  in  the  paper  currency  will  only  occasion  a  riso 
in  the  paper  or  currency  price  of  commodities,  but  will  not  cause  an  increase  in  their 
bullion  price. 

This  would  be  true  at  a  time  when  the  currency  consisted  wholly  of  paper  not  con¬ 
vertible  into  specie,  but  not  while  specie  formed  any  part  of  the  circulation.  In  the 
latter  case  the  effect  of  an  increased  issue  of  paper  would  be  to  throw  out  of  circula¬ 
tion  an  equal  amount  of  specie;  but  this  could  not  be  done  without  adding  to  the 
quantity  of  bullion  in  the  market,  and  thereby  lowering  its  value,  or,  in  other  words, 
increasing  the  bullion  price  of  commodities.  It  is  only  in  consequence  of  this  fall  in  the 
value  of  the  metallic  currency,  and  of  bullion,  that  the  temptation  to  export  them 
arises ;  and  the  penalties  on  melting  the  coin  is  the  sole  cause  of  a  small  difference 
between  the  value  of  the  coin  and  of  bullion,  or  a  small  excess  of  the  market  above 
the  mint  price.  But  exporting  of  bullion  is  synonymous  with  an  unfavourable  balance 
of  trade.  From  whatever  cause  an  exportation  of  bullion,  in  exchange  for  commodi¬ 
ties,  may  proceed,  it  is  called  (I  think  very  incorrectly)  an  unfavourable  balance  of 
trade. 

When  the  circulation  consists  wholly  of  paper,  any  increase  in  its  quantity  will  raise 
the  money  price  of  bullion  without  lowering  its  value,  in  the  same  manner,  and  in  the 
same  proportion,  as  it  will  raise  the  prices  of  other  commodities,  and  for  the  same 
reason  will  lower  the  foreign  exchanges;  but  this  will  only  be  a  nominal,  not  a  real 
fall,  and  will  not  occasion  the  exportation  of  bullion,  because  the  real  value  of  bullion 
will  not  be  diminished,  as  there  will  be  no  increase  to  the  quantity  in  the  market. 

t  Strictly  speaking,  there  can  be  no  permanent  measure  of  value.  A  measure  of 
value  should  itself  be  invariable  ;  but  this  is  not  the  case  with  either  gold  or  silver, 
they  being  subject  to  fluctuations  as  well  as  other  commodities.  Experience  has 
indeed  taught  us,  that  though  the  variations  in  the  value  of  gold  or  silver  may  be  con¬ 
siderable,  on  a  comparison  of  distant  periods,  yet,  for  short  spaces  of  time,  their  value 
is  tolerably  fixed.  It  is  this  property,  among  other  excellences,  which  fits  them 
better  than  any  other  commodity  for  the  uses  of  money.  Either  gold  or  silver  may 
therefore,  in  the  point  of  view  in  which  we  are  considering  them,  be  called  a  measure 
of  value. 


HIGH  TRICE  OF  BULLION. 


271 

Whenever  this  happens,  one  of  the  coins  will  be  melted  to  be  sold 
for  the  other.  Mr  Locke,  Lord  Liverpool,  and  many  other  writers, 
have  ably  considered  this  subject,  and  have  all  agreed,  that  the 
only  remedy  for  the  evils  in  the  currency  proceeding  from  this 
source,  is  the  making  one  of  the  metals  only  the  standard  measure 
of  value.  Mr  Locke  considered  silver  as  the  most  proper  metal 
for  this  purpose,  and  proposed  that  gold  coins  should  be  left  to  find 
their  own  value,  and  pass  for  a  greater  or  lesser  number  of  shillings, 
as  the  market  price  of  gold  might  vary  with  respect  to  silver. 

Lord  Liverpool,  on  the  contrary,  maintained  that  gold  was  not 
only  the  most  proper  metal  for  a  general  measure  of  value  in  this 
country,  but  that,  by  the  common  consent  of  the  people,  it  had 
become  so,  was  so  considered  by  foreigners,  and  that  it  was  best 
suited  to  the  increased  commerce  and  wealth  of  England. 

He,  therefore,  proposed,  that  gold  coin  only  should  be  a  legal 
tender  for  sums  exceeding  one  guinea,  and  silver  coins  for  sums  not 
exceeding  that  amount.  As  the  law  now  stands,  gold  coin  is  a  legal 
tender  for  all  sums  ;  but  it  was  enacted  in  the  year  1774,  “  That  no 
tender  in  payment  of  money  made  in  the  silver  coin  of  this  realm, 
of  any  sum  exceeding  the  sum  of  twenty-five  pounds  at  any  one 
time,  shall  be  reputed  in  law,  or  allowed  to  be  legal  tender  within 
Great  Britain  or  Ireland,  for  more  than  according  to  its  value  by 
weight,  after  the  rate  of  5s.  2d.  for  each  ounce  of  silver.”  The 
same  regulation  was  revived  in  1798,  and  is  now  in  force. 

For  many  reasons  given  by  Lord  Liverpool,  it  appears,  proved 
beyond  dispute,  that  gold  coin  has  been  for  near  a  century  the 
principal  measure  of  value ;  but  this  is,  I  think,  to  be  attributed  to 
the  inaccurate  determination  of  the  Mint  proportions.  Gold  has 
been  valued  too  high  ;  no  silver,  therefore,  can  remain  in  circulation 
which  is  of  its  standard  weight. 

If  a  new  regulation  were  to  take  {dace,  and  silver  to  be  valued 
too  high,  or  (which  is  the  same  thing)  if  the  market  proportions 
between  the  prices  of  gold  and  silver  were  to  become  greater  than 
those  of  the  Mint,  gold  would  then  disappear,  and  silver  become 
the  standard  currency. 

This  may  require  further  explanation.  The  relative  value  of 
gold  and  silver  in  the  coins  is  as  15y3y  to  1.  An  ounce  of  gold 
which  is  coined  into  3^.  17s.  l(Hd.  of  gold  coin,  is  worth,  according 
to  the  Mint  regulation,  15yf-y  ounces  of  silver,  because  that  weight 
of  silver  is  also  coined  into  31.  17s.  10|d.  of  silver  coin.  Whilst 
the  relative  value  of  gold  to  silver  is  in  the  market  under  15  to  1, 
which  it  has  been  for  a  great  number  of  years  till  lately,  gold  coin 
would  necessarily  be  the  standard  measure  of  value,  because  neither 
the  Bank  nor  any  individual  would  send  1 5y§y  ounces  of  silver  to  the 
Mint  to  be  coined  into  3/.  17s.  10.>d.,  when  they  could  sell  that 
quantity  of  silver  in  the  market  for  more  than  3/.  17s.  10^-d.  in  gold 
coin ;  and  this  they  could  do  by  the  supposition,  that  less  than 
15  ounces  of  silver  would  purchase  an  ounce  of  gold. 


272 


HIGH  PRICK  OF  BULLION. 


But  if  the  relative  value  of  gold  to  silver  be  more  than  the  Mint 
proportion  of  15y!’g:  to  1,  no  gold  would  then  be  sent  to  the  Mint 
to  be  coined,  because  as  either  of  the  metals  are  a  legal  tender  to 
any  amount,  the  possessor  of  an  ounce  of  gold  would  not  send  it  to 
the  Mint  to  be  coined  into  3/.  17s.  lOJd.  of  gold  coin,  whilst  he 
could  sell  it,  which  he  could  do  in  such  a  case,  for  more  than 
3 1.  17s.  10v,d.  of  silver  coin.  Not  only  would  not  gold  be  carried 
to  the  Mint  to  be  coined,  but  the  illicit  trader  would  melt  the  gold 
coin,  and  sell  it  as  bullion  for  more  than  its  nominal  value  in  the 
silver  coin.  Thus,  then,  gold  would  disappear  from  circulation,  and 
silver  coin  become  the  standard  measure  of  value.  As  gold  has 
lately  experienced  a  considerable  rise  compared  with  silver  (an 
ounce  of  standard  gold,  which,  on  an  average  of  many  years,  was 
of  equal  value  to  14f  ounces  of  standard  silver,  being  now  in  the 
market  of  the  same  value  as  15i  ounces),  this  would  be  the  case 
now  were  the  Bank  restriction  bill  repealed,  and  the  coinage  of 
silver  freely  allowed  at  the  Mint,  in  the  same  manner  as  that  of 
cold  ;  but  in  an  act  of  Parliament  of  39  Geo.  III.  is  the  following 
clause  : — 

“  Whereas  inconvenience  may  arise  from  any  coinage  of  silver 
until  such  regulations  may  be  formed  as  shall  appear  necessary ; 
and  whereas  from  the  present  low  price  of  silver  bullion,  owing  tc 
temporary  circumstances,  a  small  quantity  of  silver  bullion  has  been 
brought  to  the  Mint  to  be  coined,  and  there  is  reason  to  suppose 
that  a  still  further  quantity  may  be  brought ;  and  it  is,  therefore, 
necessary  to  suspend  the  coining  of  silver  for  the  present ;  be  it 
therefore  enacted,  That  from  and  after  the  passing  of  this  act,  no 
silver  bullion  shall  be  coined  at  the  Mint,  nor  shall  any  silver  coin 
that  may  have  been  coined  there  be  delivered,  any  law  to  the  con¬ 
trary  notwithstanding.” 

This  law  is  now  in  force. 

It  would  appear,  therefore,  to  have  been  the  intention  of  the 
legislature  to  establish  gold  as  the  standard  of  currency  in  this 
country.  Whilst  this  law  is  in  force,  silver  coin  must  be  confined 
to  small  payments  only,  the  quantity  in  circulation  being  barely 
sufficient  for  that  purpose.  It  might  be  for  the  interest  of  a  debtor 
to  pay  his  large  debts  in  silver  coin  if  he  could  get  silver  bullion 
coined  into  money  ;  but  being  prevented  by  the  above  law  from 
doing  so,  he  is  necessarily  obliged  to  discharge  his  debt  with  gold 
coin,  which  he  could  obtain  at  the  Mint  with  gold  bullion  to  any 
amount.  Whilst  this  law  is  in  force,  gold  must  always  continue  to 
be  the  standard  of  currency. 

Were  the  market  value  of  an  ounce  of  gold  to  become  equal  to 
thirty  ounces  of  silver,  gold  would  nevertheless  be  the  measure  of 
value,  whilst  this  prohibition  continued  in  force.  It  would  be  of 
no  avail,  that  the  possessor  of  30  ounces  of  silver  should  know  that 
lie  once  could  have  discharged  a  debt  of  3/.  17s.  10|d.  by  procuring 
15  ounces  of  silver  to  be, coined  at  the  Mint,  as  he  would  in  this 


IIIGII  THICK  OF  BULLION. 


273 


case  have  no  other  means  of  discharging  his  debt  but  by  selling  his 
30  oz.  of  silver  at  the  market  value,  that  is  to  say,  for  one  ounce  of 
gold,  or  31.  17s.  l(Hd.  of  gold  coin. 

The  public  has  sustained,  at  different  times,  very  serious  loss 
from  the  depreciation  of  the  circulating  medium,  arising  from  the 
unlawful  practice  of  clipping  the  coins. 

In  proportion  as  they  become  debased,  so  the  prices  of  every 
commodity  for  which  they  are  exchangeable  rise  in  nominal  value, 
not  excepting  gold  and  silver  bullion  :  accordingly  we  find,  that 
before  the  recoinage  in  the  reign  of  King  William  the  Third,  the 
silver  currency  had  become  so  degraded,  that  an  ounce  of  silver, 
which  ought  to  be  contained  in  62  pence,  sold  for  77  pence;  and  a 
guinea,  which  was  valued  at  the  Mint  at  20  shillings,  passed  in  all 
contracts  for  30  shillings.  This  evil  was  then  remedied  by  the 
recoinage.  Similar  effects  followed  from  the  debasement  of  the 
gold  currency,  which  were  again  corrected  in  1774  by  the  same 
means. 

Our  gold  coins  have,  since  1774,  continued  nearly  at  their 
standard  purity ;  but  our  silver  currency  has  again  become  debased. 
By  an  assay  at  the  Mint  in  1798,  it  appears  that  our  shillings  were 
found  to  be  24  per  cent.,  and  our  sixpences  38  per  cent.,  under  their 
Mint  value ;  and  I  am  informed,  that  by  a  late  experiment  they 
were  found  considerably  more  deficient.  They  do  not,  therefore, 
contain  as  much  pure  silver  as  they  did  in  the  reign  of  King 
William.  This  debasement,  however,  did  not  operate  previously  to 
1798,  as  on  the  former  occasion.  At  that  time  both  gold  and  silver 
bullion  rose  in  proportion  to  the  debasement  of  the  silver  coin.  All 
foreign  exchanges  were  against  us  full  20  per  cent.,  and  many  of 
them  still  more.  But  although  the  debasement  of  the  silver  coin 
had  continued  for  many  years,  it  had  neither,  previously  to  1798, 
raised  the  price  of  gold  nor  silver,  nor  had  it  produced  any  effect 
on  the  exchanges.  This  is  a  convincing  proof,  that  gold  coin  was, 
during  that  period,  considered  as  the  standard  measure  of  value. 
Any  debasement  of  the  gold  coin  wonld  then  have  produced,  the 
same  effects  on  the  prices  of  gold  and  silver  bullion,  and  on  the 
foreign  exchanges,  which  were  formerly  caused  by  the  debasement 
of  the  silver  coins.* 

While  the  currency  of  different  countries  consists  of  the  precious 
metals,  or  of  a  paper  money  which  is  at  all  times  exchangeable  for 
them ;  and  while  the  metallic  currency  is  not  debased  by  wearing 
or  clipping,  a  comparison  of  the  weight  and  degree  of  fineness  of 
their  coins  will  enable  us  to  ascertain  their  par  of  exchange.  Thus 
the  par  of  exchange  between  Holland  and  England  is  stated  to  be 
about  eleven  florins,  because  the  pure  silver  contained  in  eleven 


*  When  the  gold  coin  was  debased,  previously  to  the  recoinage  in  1774,  gold  and 
silver  bullion  rose  above  their  Mint  prices,  and  fell  immediately  on  the  gold  coin 
attaining  its  present  perfection.  The  exchanges  were,  owing  to  the  same  causes, 
from  being  unfavourable  rendered  favourable. 


271 


niGII  TRICE  OF  BULLION. 


florins  is  equal  to  the  pure  silver  contained  in  twenty  standard 
shillings. 

This  par  is  not,  nor  can  it  be,  absolutely  fixed ;  because  gold 
coin  being  the  standard  of  commerce  in  England,  and  silver  coin 
in  Holland,  a  pound  sterling,  or  of  a  guinea,  may  at  different 
times  be  more  or  less  valuable  than  twenty  standard  shillings,  and 
therefore  more  or  less  valuable  than  its  equivalent  of  eleven  florins. 
Estimating  the  par  either  by  silver  or  by  gold  will  be  sufficiently- 
exact  for  our  purpose. 

If  I  owe  a  debt  in  Holland,  by  knowing  the  par  of  exchange,  I 
also  know  the  quantity  of  our  money  which  will  be  necessary  to  dis¬ 
charge  it. 

If  my  debt  amount  to  1,100  florins,  and  gold  have  not  varied  in 
value,  100/.  in  our  pure  gold  coin  will  purchase  as  much  Dutch 
currency  as  is  necessary  to  pay  my  debt.  By  exporting  the  100/. 
therefore  in  coin,  or  (which  is  the  same  thing)  paying  a  bullion 
merchant  the  100/.  in  coin,  and  allowing  him  the  expenses  attend¬ 
ing  its  transportation,  such  as  freight,  insurance,  and  his  profit,  he 
will  sell  me  a  bill  which  will  discharge  my  debt ;  at  the  same  time 
he  will  export  the  bullion  to  enable  his  correspondent  to  pay  the 
bill  when  it  shall  become  due. 

These  expenses,  then,  are  the  utmost  limits  of  an  unfavourable 
exchange.  However  great  my  debt  may  be,  though  it  equalled  the 
largest  subsidy  ever  given  by  this  country  to  an  ally ;  while  I  could 
pay  the  bullion  merchant  in  coin  of  standard  value,  he  would  be 
glad  to  export  it,  and  to  sell  me  bills.  But  if  I  pay  him  for  his  bill 
in  a  debased  coin,  or  in  a  depreciated  paper-money,  he  will  not  be 
willing  to  sell  me  his  bill  at  this  rate ;  because  if  the  coin  be  debased 
it  does  not  contain  the  quantity  of  pure  gold  or  silver  which  ought 
to  be  contained  in  100/.,  and  he  must  therefore  export  an  additional 
number  of  such  debased  pieces  of  money  to  enable  him  to  pay  my 
debt  of  100/.,  or  its  equivalent,  1,100  florins.  If  I  pay  him  in  paper- 
money,  as  he  cannot  send  it  abroad,  he  will  consider  whether  it 
will  purchase  as  much  gold  or  silver  bullion  as  is  contained  in  the 
coin  for  which  it  is  a  substitute ;  if  it  will  do  this,  paper  will  be  as 
acceptable  to  him  as  coin ;  but  if  it  will  not,  he  will  expect  a  further 
premium  for  his  bill,  equal  to  the  depreciation  of  the  paper. 

"While  the  circulating  medium  consists,  therefore,  of  coin  unde¬ 
based,  or  of  paper-money  immediately  exchangeable  for  undebased 
coin,  the  exchange  can  never  be  more  above,  or  more  below  par, 
than  the  expenses  attending  the  transportation  of  the  precious 
metals.  But  when  it  consists  of  a  depreciated  paper-money,  it 
necessarily  will  fall  according  to  the  degree  of  the  depreciation. 

The  exchange  will,  therefore,  be  a  tolerably  accurate  criterion 
by  which  we  may  judge  of  the  debasement  of  the  currency,  pro¬ 
ceeding  either  from  a  clipped  coinage  or  a  depreciated  paper- 
money. 

It  is  observed  by  Sir  James  Stuart,  “That  if  the  foot  measure 


HIGH  PRICE  OF  BULLION. 


275 


was  altered  at  once  over  all  England,  by  adding  to  it  or  taking 
from  it  any  proportional  part  of  its  standard  length,  the  alteration 
would  be  best  discovered  by  comparing  the  new  foot  with  that  of 
Paris,  or  of  any  other  country  which  had  suffered  no  alteration. 

“  Just  so,  if  the  pound  sterling,  which  is  the  English  unit,  shall 
be  found  any  how  changed,  and  if  the  variation  it  has  met  with  be 
difficult  to  ascertain  because  of  a  complication  of  circumstances,  the 
best  way  to  discover  it  will  be  to  compare  the  former  and  the 
present  value  of  it  with  the  money  of  other  nations  which  has 
suffered  no  variation.  This  the  exchange  will  perform  with  the 
greatest  exactness.” 

The  Edinburgh  reviewers,  in  speaking  of  Lord  King’s  pamphlet, 
observe,  that  “  it  does  not  follow  because  our  imports  always 
consist  partly  of  bullion  that  the  balance  of  trade  is  therefore 
permanently  in  our  favour.  Bullion,”  they  say,  “  is  a  commodity 
for  which,  as  for  every  other,  there  is  a  varying  demand,  and  which, 
exactly'like  any  other,  may  enter  the  catalogue  either  of  imports  or 
exports ;  and  this  exportation  or  importation  of  bullion  will  not 
affect  the  course  of  exchange  in  a  different  way  from  the  exporta¬ 
tion  or  importation  of  any  other  commodities.” 

Ko  person  ever  exports  or  imports  bullion  without  first  consider¬ 
ing  the  rate  of  exchange.  It  is  by  the  rate  of  exchange  that  he 
discovers  the  relative  value  of  bullion  in  the  two  countries  between 
which  it  is  estimated.  It  is  therefore  consulted  by  the  bullion 
merchant  in  the  same  manner  as  the  price-current  is  by  other 
merchants,  before  they  determine  on  the  exportation  or  importation 
of  other  commodities.  If  eleven  florins  in  Holland  contain  an 
e^ual  quantity  of  pure  silver  as  20  standard  shillings,  silver 
bullion,  equal  in  weight  to  20  standard  shillings,  can  never  be 
exported  from  London  to  Amsterdam  whilst  the  exchange  is  at 
,  par,  or  unfavourable  to  Holland.  Some  expense  and  risk  must 
attend  its  exportation,  and  the  very  term  par  expresses  that  a 
quantity  of  silver  bullion,  equal  to  that  weight  and  purity,  is  to  be 
obtained  in  Holland  by  the  purchase  of  a  bill  of  exchange,  free  of 
all  expense.  Who  would  send  bullion  to  Holland  at  an  expense 
of  3  or  4  per  cent,  when,  by  the  purchase  of  a  bill  at  par,  he 
in  fact  obtains  an  order  for  the  delivery  to  his  correspondent  in 
Holland  of  the  same  weight  of  bullion  which  he  was  about  to 
:  export ? 

It  would  be  as  reasonable  to  contend  that,  when  the  price  of 
corn  is  higher  in  England  than  on  the  Continent,  corn  would  be 
sent,  notwithstanding  all  the  charges  on  its  exportation,  to  be  sold 
in  the  cheaper  market. 

Having  already  noticed  the  disorders  to  which  a  metallic  cur¬ 
rency  is  exposed,  I  will  proceed  to  consider  those  which,  though 
not  caused  by  the  debased  state  of  either  the  gold  or  silver  coins, 
nre  nevertheless  more  serious  in  their  ultimate  consequences. 

Our  circulating  medium  is  almost  wholly  composed  of  paper, 


276 


HIGH  PRICE  OF  BULLION. 


and  it  behoves  us  to  guard  against  the  depreciation  of  the  paper 
v  currency  with  at  least  as  much  vigilance  as  against  that  of  the 
coins. 

This  we  have  neglected  to  do. 

Parliament,  by  restricting  the  Bank  from  paying  in  specie,  have 
enabled  the  conductors  of  that  concern  to  increase  or  decrease  at 
\j  pleasure  the  quantity  and  amount  of  their  notes ;  and  the  previously 
existing  checks  against  an  over-issue  having  been  thereby  removed, 
those  conductors  have  acquired  the  power  of  increasing  or  decreasing 
the  value  of  the  paper  currency. 

In  tracing  the  present  evils  to  their  source,  and  proving  their 
existence  by  an  appeal  to  the  two  unerring  tests  I  have  before 
mentioned,  namely,  the  rate  of  exchange  and  the  price  of  bullion, 
I  shall  avail  myself  of  the  account  given  by  Mr  Thornton  of  the 
conduct  of  the  Bank  before  the  restriction,  to  show  how  clearly 
they  acted  on  the  principle  which  he  has  expressly  acknowledged, 
viz.  that  the  value  of  their  notes  is  dependent  on  their  amount, 
and  that  they  ascertained  the  variation  in  their  value  by  the  tests 
I  have  just  referred  to. 

Mr  Thornton  tells  us,  “  That,  if  at  any  time  the  exchanges  of 
the  country  become  so  unfavourable  as  to  produce  a  material 
excess  of  the  market  above  the  Mint  price  of  gold,  the  directors  of 
the  Bank,  as  appears  by  the  evidence  of  some  of  their  body  given 
to  parliament,  were  disposed  to  resort  to  a  reduction  of  their  paper, 
as  a  means  of  diminishing  or  removing  the  excess,  and  of  thus 
providing  for  the  security  of  their  establishment.  They,  moreover, 
have  at  all  times,”  he  says,  “  been  accustomed  to  observe  some 
limit  as  to  the  quantity  of  their  notes  for  the  same  prudential 
reasons.”  And  in  another  place :  u  When  the  price  which  our 
coin  will  fetch  in  foreign  countries  is  such  as  to  tempt  it  out  of  the 
kingdom,  the  directors  of  the  Bank  naturally  diminish,  in  some 
degree,  the  quantity  of  their  paper  through  an  anxiety  for  the  safety 
of  their  establishment.  By  diminishing  their  paper,  they  raise  its 
value  ;  and  in  raising  its  value,  they  raise  also  the  value  in  England 
of  the  current  coin  which  is  exchanged  for  it.  Thus,  the  value  of 
our  gold  coin  conforms  itself  to  the  value  of  the  current  paper,  and 
the  current  paper  is  rendered  by  the  Bank  directors  of  that  value 
which  it  is  necessary  that  it  should  bear  in  order  to  prevent 
large  exportations, : — a  value  sometimes  rising  a  little  above,  and 
sometimes  falling  a  little  below,  the  price  which  our  coin  bears 
abroad.” 

The  necessity  which  the  Bank  felt  itself  under  to  guard  the  safety 
of  its  establishment,  therefore,  always  prevented,  before  the  restric¬ 
tion  from  paying  in  specie,  a  too  lavish  issue  of  paper-money. 

Thus  we  find  that,  for  a  period  of  twenty-three  years  previously 
to  the  suspension  of  cash  payments  in  1797,  the  average  price  ol 
gold  bullion  was  3 1.  17s.  7fd.  per  oz.,  about  2fd.  under  the  Mint 
price  ;  and  for  sixteen  years  previously  to  1774,  it  never  was  nnu  li 


HIGH  PRICE  OF  BULLION. 


277 


above  4 1.  per  oz.  It  should  be  remembered,  that  during  these 
sixteen  years  our  gold  coin  was  debased  by  wearing,  and  it  is 
therefore  probable  that  4/.  of  such  debased  money  did  not  weigh  as 
much  as  the  ounce  of  gold  for  which  it  was  exchanged. 

Dr  A.  Smith  considers  every  permanent  excess  of  the  market 
above  the  Mint  price  of  gold,  as  referable  to  the  state  of  the  coins. 
While  the  coin  was  of  its  standard  weight  and  purity,  the  market 
price  of  gold  bullion,  he  thought,  could  not  greatly  exceed  the  Mint 
price. 

Mr  Thornton  contends  that  this  cannot  be  the  only  cause.  “  We 
have,”  he  says,  “  lately  experienced  fluctuations  in  our  exchanges, 
and  correspondent  variations  in  the  market,  compared  with  the  Mint 
price  of  gold,  amounting  to  no  less  than  8  or  10  per  cent. ;  the 
state  of  our  coinage  continuing  in  all  respects  the  same.”  Mr 
Thornton  should  have  reflected,  that  at  the  time  he  wrote,  specie 
could  not  be  demanded  at  the  Bank  in  exchange  for  notes  ;  that 
this  was  a  cause  for  the  depreciation  of  the  currency  which  Dr 
Smith  could  never  have  anticipated.  If  Mr  Thornton  had  proved 
that  there  had  been  a  fluctuation  of  10  per  cent,  in  the  price  of  gold, 
while  the  Bank  paid  their  notes  in  specie,  and  the  coin  was  unde¬ 
based,  he  would  then  have  convicted  Dr  Smith  of  “  having  treated 
this  important  subject  in  a  defective  and  unsatisfactory  manner.”* 

But  as  all  checks  against  the  over-issues  of  the  Bank  are  now 
removed  by  the  act  of  parliament,  which  restricts  them  from  paying 
their  notes  in  specie,  they  are  no  longer  bound  by  “  fears  for  the 
safety  of  their  establishment ,”  to  limit  the  quantity  of  their  notes  to 
that  sum  which  shall  keep  them  of  the  same  value  as  the  coin  which 
they  represent.  Accordingly,  we  find  that  gold  bullion  has  risen 
from  3/.  17s.  7fd.,  the  average  price  previously  to  1797,  to  4/.  10s., 
and  has  been  lately  as  high  as  4/.  13s.  per  oz. 

*  An  excess  in  the  market  above  the  Mint  price  of  gold  or  silver  bullion,  may, 

1  whilst  the  coins  of  both  metals  are  legal  tender,  and  there  is  no  prohibition  against  the 
1  coinage  of  either  metal,  4>e  caused  by  a  variation  in  the  relative  value  of  those  metals  ; 
but  an  excess  of  the  market  above  the  Mint  price  proceeding  from  this  cause  will  be 
at  once  perceived  by  its  affecting  only  the  price  of  one  of  the  metals.  Thus,  gold  would 
be  at  or  below,  while  silver  was  above,  its  Mint  price,  or  silver  at  or  below  its  Mint 

•  price,  whilst  gold  was  above. 

In  the  latter  end  of  1795,  when  the  Bank  had  considerably  more  notes  in  circulation 
than  either  the  preceding  or  the  subsequent  year,  when  their  embarrassments  had  already 
commenced,  when  they  appear  to  have  resigned  all  prudence  in  the  management  of 
.  their  concerns,  and  to  have  constituted  Mr  Pitt  sole  director,  the  price  of  gold  bullion 
:  did  for  a  short  time  rise  to  4/.  3s.,  or  4/.  4s.  per  oz. ;  but  the  directors  were  not  without 
their  fears  for  the  consequences.  In  a  remonstrance  sent  by  them  to  Mr  Pitt,  dated 
October  1795,  after  stating,  “  that  the  demand  for  gold  not  appearing  likely  soon  to 
cease,”  and  “  that  it  had  excited  great  apprehension  in  the  court  of  directors,”  thev 

•  observe,  “The  present  price  of  gold  being  4/.  3s.  to  At.  4s.t  per  ounce,  and  our  guineas 
being  to  be  purchased  at  3/.  17s.  10Ad.,  clearly  demonstrates  the  grounds  of  our  fears; 

1  H  being  only  necessary  to  state  those  facts  to  the  Chancellor  of  the  Exchequer .”  It  is 
remarkable  that  no  price  of  gold  above  the  Mint  price  is  quoted  during  the  whole  year 
in  Wetenhall’s  list.  Tu  December  it  is  there  marked  3/.  17s.  Cd. 

t  It  is  difficult  to  determine  on  what  authoritv  the  directors  made  this  assertion,  as 
!  by  a  return  lately  made  to  parliament  it  appears  that  during  the  year  1795  they  did 
not  purchase  gold  bullion  at  a  price  higher  than  3/.  17s.  Gd. 


HIGH  TRICE  OF  BULLION. 


278 


We  may,  therefore,  fairly  conclude,  that  this  difference  in  the 
relative  value,  or,  in  other  words,  that  this  depreciation  in  the 
actual  value  of  bank  notes  has  been  caused  by  the  too  abundant 
quantity  which  the  Bank  has  sent  into  circulation.  The  same 
cause  which  has  produced  a  difference  of  from  15  to  20  per  cent, 
in  bank  notes  when  compared  with  gold  bullion,  may  increase  it 
to  50  per  cent.  There  can  be  no  limit  to  the  depreciation  which 
may  arise  from  a  constantly  increasing  quantity  of  paper.  The 
stimulus  which  a  redundant  currency  gives  to  the  exportation  of 
the  coin  has  acquired  new  force,  but  cannot,  as  formerly,  relieve 
itself.  We  have  paper-money  only  in  circulation,  which  is  neces¬ 
sarily  confined  to  ourselves.  Every  increase  in  its  quantity  degrades 
it  below  the  value  of  gold  and  silver  bullion,  below  the  value  of  the 
currencies  of  other  countries. 

The  effect  is  the  same  as  that  which  would  have  been  produced 
from  clipping  our  coins. 

If  one-fifth  were  taken  off  from  every  guinea,  the  market  price 
of  gold  bullion  would  rise  one-fifth  above  the  Mint  price.  Forty- 
four  guineas  and  a  half  (the  number  of  guineas  weighing  a  pound, 
and  therefore  called  the  Mint  price),  would  no  longer  weigh  a 
pound,  therefore  a  fifth  more  than  that  quantity,  or  about  56/. 
would  be  the  price  of  a  pound  of  gold,  and  the  difference  between 
the  market  and  the  Mint  price,  between  56/.  and  46/.  14s.  6d.  would 
measure  the  depreciation. 

If  such  debased  coin  were  to  continue  to  be  called  by  the  name 
of  guineas,  and  if  the  value  of  gold  bullion  and  all  other  commo¬ 
dities  were  rated  in  the  debased  coin,  a  guinea  fresh  from  the  Mint 
would  be  said  to  be  worth  1/.  5s.,  and  that  sum  would  be  given  for 
it  by  the  illicit  trader ;  but  it  would  not  be  the  value  of  the  new 
guinea  which  had  increased,  but  that  of  the  debased  guineas  which 
had  fallen.  This  would  immediately  be  evident,  if  a  proclamation 
were  issued,  prohibiting  the  debased  guineas  from  being  current 
but  by  weight  at  the  Mint  price  of  3/.  17s.  10/rtl. ;  this  would  be 
constituting  the  new  and  heavy  guineas  the  standard  measure  of 
value,  in  lieu  of  the  clipped  and  debased  guineas.  The  latter  would 
then  pass  at  their  true  value,  and  be  called  17  or  18  shillings- 
pieces.  So  if  a  proclamation  to  the  same  effect  were  now  enforced, 
bank  notes  would  not  be  less  current,  but  would  pass  only  for 
the  value  of  the  gold  bullion  which  they  would  purchase.  A 
guinea  would  then  no  longer  be  said  to  be  worth  1/.  5s.,  but  a 
pound  note  would  be  current  only  for  16  or  17  shillings.  At 
present  gold  coin  is  only  a  commodity,  and  bank  notes  are  the 
standard  measure  of  value,  but  in  that  case  gold  coin  would  be 
that  measure,  and  bank  notes  would  be  the  marketable  commodity. 

“  It  is,”  says  Mr  Thornton,  “  the  maintenance  of  our  general 
exchanges,  or,  in  other  words,  it  is  the  agreement  of  the  Mint 
price  with  the  bullion  price  of  gold,  which  seems  to  be  the  true 
proof  that  the  circulating  paper  is  not  depreciated.” 


HIGH  PRICK  OF  BULLION. 


279 


When  the  motive  for  exporting  gold  occurs,  while  the  Bank  do 
not  pay  in  specie,  and  gold  cannot  therefore  be  obtained  at  its 
Mint  price,  the  small  quantity  that  can  be  procured  will  be  collected 
for  exportation,  and  bank  notes  will  be  sold  at  a  discount  for  gold 
in  proportion  to  their  excess.  In  saying,  however,  that  gold  is  at 
a  high  price,  we  are  mistaken  ;  it  is  not  gold,  it  is  paper  which  has 
changed  its  value.  Compare  an  ounce  of  gold,  or  31.  17s.  lO^d.  to 
commodities,  it  bears  the  same  proportion  to  them  which  it  has 
before  done ;  and  if  it  do  not,  it  is  referable  to  increased  taxation, 
or  to  some  of  those  causes  which  are  so  constantly  operat  ing  on  its 
value.  But  if  we  compare  the  substitute  of  an  ounce  of  gold,  3/. 
17s.  10|d.  in  bank  notes,  with  commodities,  we  shall  then  discover 
the  depreciation  of  the  bank  notes.  In  every  market  of  the  world 
lam  obliged  to  part  with  41. 10s.  in  bank  notes  to  purchase  the  same 
quantity  of  commodities  which  I  can  obtain  for  the  gold  that  is  in 
31.  17s.  10|d.  of  coin. 

It  is  often  asserted,  that  a  guinea  is  worth  at  Hamburgh  26  or 
28  shillings  ;  but  we  should  be  very  much  deceived  if  we  should 
therefore  conclude  that  a  guinea  could  be  sold  at  Hamburgh  for  as 
much  silver  as  is  contained  in  26  or  28  shillings.  Before  the  altera¬ 
tion  in  the  relative  value  of  gold  and  silver,  a  guinea  would  not  sell 
at  Hamburgh  for  as  much  silver  coin  as  is  contained  in  21  standard 
shillings  ;  it  will  at  the  present  market  price  sell  for  a  sum  of  silver 
currency,  which,  if  imported  and  carried  to  our  Mint  to  be  coined, 
will  produce  in  our  standard  silver  coin  21s.  5d.* 

It  is  nevertheless  true,  that  the  same  quantity  of  silver  will,  at 
Hamburgh,  purchase  a  bill  payable  in  London,  in  bank  notes,  for 
26  or  28  shillings.  Can  there  be  a  more  satisfactory  proof  of  the 
depreciation  of  our  circulating  medium  ? 

It  is  said,  that,  if  the  Restriction-bill  were  not  in  force,  every 
guinea  would  leave  the  country.! 

This  is,  no  doubt,  true  ;  but  if  the  Bank  were  to  diminish  the 
quantity  of  their  notes  until  they  had  increased  their  value  15  ^ 
per  cent.,  the  restriction  might  be  safely  removed,  as  there  would 
then  be  no  temptation  to  export  specie.  However  long  it  may  be 
deferred,  however  great  may  be  the  discount  on  their  notes,  the 
Bank  can  never  resume  their  payments  in  specie,  until  they  first 
reduce  the  amount  of  their  notes  in  circulation  to  these  limits. 

The  law  is  allowed  by  all  writers  on  political  economy  to  be  a 
useless  barrier  against  the  exportation  of  guineas :  it  is  so  easily 
evaded,  that  it  is  doubted  whether  it  has  had  the  effect  of  keeping 
a  single  guinea  more  in  England  than  there  would  have  been 
without  such  law.  Mr  Locke,  Sir  J.  Stuart,  Dr  A.  Smith,  Lon  I 

*  The  relative  value  of  gold  and  silver  is,  on  the  Continent,  nearly  the  same  as  in 

London. 

t  It  must  he  meant  that  every  guinea  in  the  Bank  would  leave  the  country ;  the 
temptation  of  15  per  cent,  is  amply  sufficient  to  send  those  out  which  can  be  collected 
from  the  circulation. 


280 


HIGH  TRICE  OF  BULLION". 


Liverpool,  and  Mr  Thornton,  all  agree  on  this  subject.  The  latter 
gentleman  observes,  “  that  the  state  of  the  British  law  unquestion¬ 
ably  serves  to  discourage  and  limit,  though  not  effectually  to  hinder, 
that  exportation  of  guineas  which  is  encouraged  by  an  unfavourable 
balance  of  trade,  and  perhaps  scarcely  lessens  it  when  the  profit  on 
exportation  becomes  very  great.”  Yet,  after  every  guinea  that  can 
in  the  present  state  of  things  be  procured  by  the  illicit  trader  has 
been  melted  and  exported,  he  will  hesitate  before  he  openly  buys 
guineas  with  bank  notes  at  a  premium,  because,  though  considerable 
profit  may  attend  such  speculation,  he  will  thereby  render  himself 
an  object  of  suspicion.  He  may  be  watched,  and  prevented  from 
effecting  his  object.  As  the  penalties  of  the  law  are  severe,  and 
the  temptation  to  informers  great,  secrecy  is  essential  to  his  opera¬ 
tions.  When  guineas  can  be  procured  by  merely  sending  a  bank 
note  for  them  to  the  Bank,  the  law  will  be  easily  evaded  ;  but  when 
it  is  necessary  to  collect  them  openly  and  from  a  widely  diffused 
circulation,  consisting  almost  wholly  of  paper,  the  advantage 
attending  it  must  be  very  considerable  before  any  one  will  encounter 
the  risk  of  being  detected. 

When  wTe  reflect  that  above  60  millions  sterling  have  been  coined 
into  guineas  during  his  present  Majesty’s  reign,  we  may  form  some 
idea  of  the  extent  to  which  the  exportation  of  gold  must  have  been 
carried. — But  repeal  the  law  against  the  exportation  of  guineas, 
permit  them  to  be  openly  sent  out  of  the  country,  and  what  can 
prevent  an  ounce  of  standard  gold  in  guineas  from  selling  at  as  good 
a  price  for  bank  notes  as  an  ounce  of  Portuguese  gold  coin,  or 
standard  gold  in  bars,  when  it  is  known  to  be  equal  to  them  in 
fineness?  And  if  an  ounce  of  standard  gold  in  guineas  would  sell 
in  the  market,  as  standard  bars  do  now,  at  41.  10s.  per  oz.,  or,  as 
they  have  lately  done,  at  41.  13s.  per  oz.,  what  shopkeeper  would 
sell  his  goods  at  the  same  price  either  for  gold  or  bank  notes  indif¬ 
ferently  ?  If  the  price  of  a  coat  were  31.  17s.  10id.  or  an  ounce  of 
gold,  and  if  at  the  same  time  an  ounce  of  gold  would  sell  for  41.  13s., 
is  it  conceivable  that  it  would  be  a  matter  of  indifference  to  the 
tailor  whether  he  were  paid  in  gold  or  in  bank  notes  ? 

It  is  only  because  a  guinea  will  not  purchase  more  than  a  pound- 
note  and  a  shilling  that  many  hesitate  to  allow  that  bank  notes  are 
at  a  discount.  The  Edinburgh  Review  supports  the  same  opinion  ; 
but,  if  my  reasoning  be  correct,  I  have  shown  such  objections  to  be 
groundless. 

Mr  Thornton  has  told  us  that  an  unfavourable  trade  will  account 
for  an  unfavourable  exchange  ;  but  we  have  already  seen  that  an 
unfavourable  trade,  if  such  be  an  accurate  term,  is  limited  in  its 
effects  on  the  exchange.  That  limit  is  probably  4  or  5  per  cent. 
This  will  not  account  for  a  depreciation  of  15  or  20  per  cent. 
Moreover,  Mr  Thornton  has  told  us,  and  I  entirely  agree  with  him, 
“  that  it  may  be  laid  down  as  a  general  truth,  that  the  commercial 
exports  and  imports  of  a  state  naturally  proportion  themselves  in 


IIIC.II  PRICE  OF  BULLION. 


281 


some  degree  to  each  other,  and  that  the  balance  of  trade,  therefore, 
cannot  continue  for  a  very  long  time  to  be  either  highly  favourable 
or  highly  unfavourable  to  a  country.”  Now,  the  low  exchange,  so 
far  from  being  temporary,  existed  before  Mr  Thornton  wrote  in 
1802,  and  has  since  been  progressively  increasing,  and  is  now  from 
15  to  20  per  cent,  against  us.  Mr  Thornton  must  therefore, 
according  to  his  own  principles,  attribute  it  to  some  more  permanent 
cause  than  an  unfavourable  balance  of  trade,  and  will,  I  doubt  not, 
whatever  his  opinion  may  formerly  have  been,  now  agree  that  it  is 
to  be  accounted  for  only  by  the  depreciation  of  the  circulating 
medium. 

It  can,  I  think,  no  longer  be  disputed  that  bank  notes  are  at  a 
discount.  While  the  price  of  gold  bullion  is  4 /.  10s.  per  oz.,  or,  in 
other  words,  while  any  man  will  consent  to  give  that  which  professes 
to  be  an  obligation  to  pay  nearly  an  ounce  and  a  sixth  of  an  ounce 
of  gold  for  an  ounce,  it  cannot  be  contended  that  4/.  10s.  in  notes 
and  4 /.  10s.  in  gold  coin  are  of  the  same  value.  « 

An  ounce  of  gold  is  coined  into  3/.  1 7s.  10-^d.;  by  possessing  that 
sum,  therefore,  I  have  an  ounce  of  gold,  and  would  not  give  4/.  10s. 
in  gold  coin,  or  notes  which  I  could  immediately  exchange  for 
41.  10s.,  for  an  ounce  of  gold. 

It  is  contrary  to  common  sense  to  suppose  that  such  could  be  the 
market  value,  unless  the  price  were  estimated  in  a  depreciated 
medium. 

If  the  price  of  gold  were  estimated  in  silver ,  indeed,  the  price 
might  rise  to  4 /.,  51.,  or  10/.  an  ounce,  and  it  would  of  itself  be  no 
proof  of  the  depreciation  of  paper  currency,  but  of  an  alteration  in 
the  relative  value  of  gold  and  silver.  1  have,  however,  I  think, 
proved  that  silver  is  not  the  standard  measure  of  value,  and  there¬ 
fore  not  the  medium  in  which  the  value  of  "old  is  estimated.  But 

#  ,  .  o 

it  it  were,  as  an  ounce  of  gold  is  only  worth  in  the  market  151- 
ounces  of  silver,  and  as  15^  ounces  of  silver  is  precisely  equal  in 
weight,  and  is  therefore  coined  into  80  shillings,  an  ounce  of  gold 
ought  not  to  sell  for  more  than  41. 

Those,  then,  who  maintain  that  silver  is  the  measure  of  value, 
cannot  prove  that  any  demand  for  gold  which  may  have  taken 
place,  from  whatever  cause  it  may  have  proceeded,  can  have  raised 
its  price  above  41.  per  oz.  All  above  that  price  must,  on  their  own 
principles,  be  called  a  depreciation  in  the  value  of  bank  notes.  It 
therefore  follows,  that  if  bank  notes  be  the  representative  of  silver 
coin,  then  an  ounce  of  gold,  selling  as  it  now  does  for  4/.  10s.,  selis 
for  an  amount  of  notes  which  represent  17^  ounces  of  silver, 
whereas,  in  the  bullion  market,  it  can  only  be  exchanged  for  15-^ 
ounces.  Fifteen  ounces  and  a  half  of  silver  bullion  are  therefore  of 
equal  value  with  an  engagement  of  the  Bank  to  pay  to  hearer 
seventeen  ounces  and  a  half. 

The  market  price  of  silver  is  at  the  present  time  5s.  9^d.  per  oz., 
estimated  in  bank  notes,  the  Mint  price  being  only  5s.  2d.,  conse- 


282 


HIGH  PRICE  OF  BULLION. 


quently,  the  standard  silver  in  100/.  is  worth  more  than  112/.  in 
bank  notes. 

But  bank  notes,  it  may  be  said,  are  the  representatives  oi  our 
debased  silver  coin,  and  not  of  our  standard  silver.  This  is  not 
true,  because  the  law  which  I  have  already  quoted  declares  silver 
to  be  a  legal  tender  for  sums  only  not  exceeding-  25/.,  except  by 
weight.  If  the  Bank  insisted  on  paying  the  holder  of  a  bank  note 
of  1000/.  in  silver  coin,  they  would  be  bound  either  to  give  him 
standard  silver  of  full  weight,  or  debased  silver  of  an  equal  value, 
with  the  exception  of  25/.,  which  they  might  pay  him  in  debased 
coin.  But  the  1000/.,  so  consisting  of  975/.  pure  money,  and  25/. 
debased,  is  worth  more  than  1,112/.  at  the  present  market  value  ol 
silver  bullion. 

It  is  said  that  the  amount  of  bank  notes  has  not  increased  in  a 
greater  proportion  than  the  augmentation  of  our  trade  required, 
and  therefore  cannot  be  excessive.  This  assertion  would  be  difficult 
to  prove,  and  if  true,  no  argument  but  what  is  delusive  could  be 
founded  on  it.  In  the  first  place,  the  daily  improvements  which 
we  are  making  in  the  art  of  economizing  the  use  of  circulating 
medium  by  improved  methods  of  banking,  would  render  the  same 
amount  of  notes  excessive  now  which  were  necessary  for  the  same 
state  of  commerce  at  a  former  period.  Secondly,  there  is  a  constant 
competition  between  the  Bank  of  England  and  the  country  banks 
to  establish  their  notes,  to  the  exclusion  of  those  of  their  rivals,  in 
every  district  where  the  country  banks  are  established. 

As  the  latter  have  more  than  doubled  in  number  within  very  few 
years,  is  it  not  probable  that  their  activity  may  have  been  crowned 
with  success,  in  displacing  with  their  own  notes  many  of  those  of 
the  Bank  of  England  ? 

If  this  have  happened,  the  same  amount  of  Bank  of  England 
notes  would  now  be  excessive,  which,  with  a  less  extended  com¬ 
merce,  was  before  barely  sufficient  to  keep  our  currency  on  a  level 
with  that  of  other  countries.  No  just  conclusion  can,  therefore, 
be  drawn  from  the  actual  amount  of  bank  notes  in  circulation, 
though  the  fact,  if  examined,  would,  I  have  no  doubt,  be  found  to 
be  that  the  increase  in  the  amount  of  bank  notes,  and  the  high 
price  of  gold,  have  usually  accompanied  each  other. 

It  is  doubted  whether  2  or  3  millions  of  bank  notes  (the  sum 
which  the  Bank  is  supposed  to  have  added  to  the  circulation,  over 
and  above  the  amount  which  it  will  easiljr  bear)  could  have  had 
such  effects  as  are  ascribed  to  them ;  but  it  should  be  recollected, 
that  the  Bank  regulate  the  amount  of  the  circulation  of  all  the 
country  banks,  and  it  is  probable  that,  if  the  Bank  increase  their 
issues  3  millions,  they  enable  the  country  banks  to  add  more  than 
3  millions  to  the  general  circulation  of  England.) 

The  money  of  a  particular  country  is  divided  amongst  its  different 
provinces  by  the  same  rules  as  the  money  of  the  world  is  divided 
amongst  the  different  nations  of  which  it  is  composed.  Each 


HIGH  PRICE  OF  BULLION. 


283 


district  will  retain  in  its  circulation  such  a  proportionate  share  of 
the  currency  of  the  country  as  its  trade,  and  consequently  its  pay¬ 
ments,  may  require,  compared  to  the  trade  of  the  whole ;  and  no 
increase  can  take  place  in  the  circulating  medium  of  one  district, 
without  being  generally  diffused,  or  calling  forth  a  proportionable 
quantity  in  every  other  district.  It  is  this  which  keeps  a  country 
bank  note  always  of  the  same  value  as  a  Bank  of  England  note. 
If  in  London,  where  Bank  of  England  notes  only  are  current, 
]  million  be  added  to  the  amount  in  circulation,  the  currency  will 
become  cheaper  there  than  elsewhere,  or  goods  will  become  dearer. 
Goods  will,  therefore,  be  sent  from  the  country  to  the  London 
market  to  be  sold  at  the  high  prices,  or,  which  is  much  more 
probable,  the  country  banks  will  take  advantage  of  the  relative 
deficiency  in  the  country  currency,  and  increase  the  amount  of 
their  notes  in  the  same  proportion  as  the  Bank  of  England  had 
done ;  prices  would  then  be  generally,  and  not  partially,  affected. 

In  the  same  manner,  if  Bank  of  England  notes  be  diminished 
1  million,  the  comparative  value  of  the  currency  of  London  will  be 
increased,  and  the  prices  of  goods  diminished.  A  Bank  of  England 
note  will  then  be  more  valuable  than  a  country  bank  note,  because 
it  will  be  wanted  to  purchase  goods  in  the  cheap  market ;  and  as 
the  country  banks  are  obliged  to  give  Bank  of  England  notes  for 
their  own  when  demanded,  they  would  be  called  upon  for  them  till 
the  quantity  of  country  paper  should  be  reduced  to  the  same  pro¬ 
portion  which  it  before  bore  to  the  London  paper,  producing  a 
corresponding  fall  in  the  prices  of  all  goods  for  which  it  was 
exchangeable. 

The  country  banks  could  never  increase  the  amount  of  their 
notes,  unless  to  fill  up  a  relative  deficiency  in  the  country  currency, 
caused  by  the  increased  issues  of  the  Bank  of  England.  "  If  they 
attempted  it,  the  same  check  which  compelled  the  Bank  of  England 
to  withdraw  part  of  their  notes  from  circulation  when  they  used  to 
pay  them  on  demand  in  specie,  would  oblige  the  country  banks  to 
adopt  the  same  course.  Their  notes  would,  on  account  of  the 
increased  quantity,  be  rendered  of  less  value  than  the  Bank  of 
England  notes,  in  the  same  manner  as  Bank  of  England  notes  were 
rendered  of  less  value  than  the  guineas  which  they  represented. 
They  would  therefore  be  exchanged  for  Bank  of  England  notes 
until  they  were  of  the  same  value. 

The  Bank  of  England  is  the  great  regulator  of  the  country  paper. 
When  they  increase  or  decrease  the  amount  of  their  notes,  the 
country  banks  do  the  same ;  and  in  no  case  can  country  banks  add 
to  the  general  circulation  unless  the  Bank  of  England  shall  have 
previously  increased  the  amount  of  their  notes. 

It  is  contended,  that  the  rate  of  interest,  and  not  the  price  of 
gold  or  silver  bullion,  is  the  criterion  by  which  we  may  always 


*  They  might, 


on  some  occasions,  displace  Bank  of  England  notes, 


but  that  consi 


284 


HIGH  TKICE  OF  BULLION. 


judge  of  the  abundance  of  paper  money;  that  if  it  were  too  abundant, 
interest  would  fall,  and  if  not  sufficiently  so,  interest  would  rise.  It 
can,  I  think,  be  made  manifest,  that  the  rate  of  interest  is  not 
regulated  by  the  abundance  or  scarcity  of  money,  but  by  the  abun¬ 
dance  or  scarcity  of  that  part  of  capital  not  consisting  of  money. 

“  Money,”  observes  Dr  A.  Smith,  “  the  great  wheel  of  circulation, 
the  great  instrument  of  commerce,  like  all  other  instruments  of 
trade,  though  it  makes  a  part,  and  a  very  valuable  part  of  the 
capital,  makes  no  part  of  the  revenue  of  the  society  to  which  it 
belongs ;  and  though  the  metal  pieces  of  which  it  is  composed,  in 
the  course  of  their  annual  circulation,  distribute  to  every  man  the 
revenue  which  properly  belongs  to  him,  they  make  themselves  no 
part  of  that  revenue. 

“  When  we  compute  the  quantity  of  industry  which  the  circu¬ 
lating  capital  of  any  society  can  employ,  we  must  always  have 
regard  to  those  parts  of  it  only  which  consist  in  provisions,  materials, 
and  finished  work  :  the  other,  which  consists  in  money,  and  which 
serves  only  to  circulate  those  three,  must  always  be  deducted.  In 
order  to  put  industry  into  motion,  three  things  are  requisite  : — • 
materials  to  work  upon,  tools  to  work  with,  and  the  wages  or 
recompense  for  the  sake  of  which  the  work  is  done.  Money  is 
neither  a  material  to  work  upon  nor  a  tool  to  work  with ;  and 
though  the  wages  of  the  workmen  are  commonly  paid  to  him  in 
money,  his  real  revenue,  like  that  of  all  other  men,  consists  not  in 
money,  but  in  money’s  worth ;  not  in  the  metal  pieces,  but  what 
can  be  got  for  them.” 

And  in  other  parts  of  his  work,  it  is  maintained,  that  the  disco¬ 
very  of  the  mines  in  America,  which  so  greatly  increased  the 
quantity  of  money,  did  not  lessen  the  interest  for  the  use  of  it ;  the 
rate  of  interest  being  regulated  by  the  profits  on  the  employment 
of  capital,  and  not  by  the  number  or  quality  of  the  pieces  of  metal 
which  are  used  to  circulate  its  produce. 

Mr  Hume  has  supported  the  same  opinion,  j  The  value  of  the 
circulating  medium  of  every  country  bears  some  proportion  to  the 
value  of  the  commodities  which  it  circulates.  In  some  countries 
this  proportion  is  much  greater  than  in  others,  and  varies,  on  some 
occasions,  in  the  same  country.  It  depends  upon  the  rapidity  of 
circulation,  upon  the  degree  of  confidence  and  credit  existing 
between  traders,  and,  above  all,  on  the  judicious  operations  of 
banking.  "Vln  England,  so  many  means  of  economizing  the  use  of 
circulating  medium  have  been  adopted,  that  its  value,  compared 
with  the  value  of  the  commodities  which  it  circulates,  is  probably 
(during  a  period  of  confidence*)  reduced  to  as  small  a  proportion 
as  is  practicable.  What  that  proportion  may  be  has  been  variously 
estimated. 

No  increase  or  decrease  of  its  quantity,  whether  consisting  of 

*  In  the  following  observations,  I  wish  it  to  he  understood  as  supposing' always  the 
same  degree  of  coniidcnce  and  credit  to  exist. 


niGH  PRICE  OF  BULLIONS 


285 


gold,  silver,  or  paper  money,  can  increase  or  decrease  its  value 
above  or  below  this  proportion.  If  the  mines  cease  to  supply  the 
annual  consumption  of  the  precious  metals,  money  will  become  more 
valuable,  and  a  smaller  quantity  will  be  employed  as  a  circulating 
medium.  The  diminution  in  the  quantity  will  be  proportioned  to 
the  increase  of  its  value.  In  like  manner,  if  new  mines  be  disco¬ 
vered,  the  value  of  the  precious  metals  will  be  reduced,  and  an 
increased  quantity  used  in  the  circulation ;  so  that  in  either  case 
the  relative  value  of  money  to  the  commodities  which  it  circulates 
will  continue  as  before. 

If,  whilst  the  Bank  paid  their  notes  on  demand  in  specie,  they 
were  to  increase  their  quantity,  they  would  produce  little  permanent 
effect  on  the  value  of  the  currency,  because  nearly  an  equal  quantity 
of  the  coin  would  be  withdrawn  from  circulation  and  exported. 

If  the  Bank  were  restricted  from  paying  their  notes  in  specie, 
and  all  the  coin  had  been  exported,  any  excess  of  their  notes  would 
depreciate  the  value  of  the  circulating  medium  in  proportion  to  the 
excess.  If  20  millions  had  been  the  circulation  of  England  before 
the  restriction,  and  4  millions  were  added  to  it,  the  24  millions 
would  be  of  no  more  value  than  the  20  were  before,  provided  commo¬ 
dities  had  remained  the  same,  and  there  had  been  no  corresponding 
exportation  of  coins  ;  and  if  the  Bank  were  successively  to  increase 
it  to  50  or  100  millions,  the  increased  quantity  would  be  all  absorbed 
in  the  circulation  of  England,  but  would  be.  in  all  cases,  depreciated 
to  the  value  of  the  20  millions. 

I  do  not  dispute,  that  if  the  Bank  were  to  bring  a  large  additional 
sum  of  notes  into  the  market,  and  offer  them  on  loan,  but  that  they 
would  for  a  time  affect  the  rate  of  interest.  The  same  effects  would 
follow  from  the  discovery  of  a  hidden  treasure  of  gold  or  silver  coin. 

If  the  amount  were  large,  the  Bank,  or  the  owner  of  the  treasure, 
might  not  be  able  to  lend  the  notes  or  the  money  at  4,  nor  per¬ 
haps  above  3  per  cent. ;  but  having  done  so,  neither  the  notes, 
nor  the  money,  would  be  retained  unemployed  bv  the  borrowers  ; 
they  would  be  sent  into  every  market,  and  would  everywhere  raise 
the  prices  of  commodities,  till  they  were  absorbed  in  the  general 
circulation.  It  is  onlv  during  the  interval  of  the  issues  of  the  Bank, 
and  their  effect  on  prices,  that  we  should  be  sensible  of  an  abun¬ 
dance  of  money  ;  interest  would,  during  that  interval,  be  under  its 
natural  level ;  but  as  soon  as  the  additional  sum  of  notes  or  of 
mone3r  became  absorbed  in  the  general  circulation,  the  rate  of 
interest  would  be  as  high,  and  new  loans  would  be  demanded  with 
as  much  eagerness  as  before  the  additional  issues. 

The  circulation  can  never  be  over  full.  If  it  be  one  of  gold  and 
silver,  any  increase  in  its  quantity  will  be  spread  over  the  world. 

If  it  be  one  of  paper,  it  will  diffuse  itself  only  in  the  country  where 
it  is  issued.  Its  effects  on  prices  will  then  be  only  local  and  nominal, 
as  a  compensation  by  means  of  the  exchange  will  be  made  to  foreign  -  , 
purchasers 


HIGH  TRICE  OE  BULLION. 


28  G 

To  suppose  that  any  increased  issues  of  the  Bank  can  have  the 
effect  of  permanently  lowering  the  rate  of  interest,  and  satisfying 
the  demands  of  all  borrowers,  so  that  there  will  be  none  to  apply 
for  new  loans,  or  that  a  productive  gold  or  silver  mine  can  have 
such  an  effect,  is  to  attribute  a  power  to  the  circulating  medium 
which  it  can  never  possess.  Banks  would,  if  this  were  possible, 
become  powerful  engines  indeed.  By  creating  paper  money,  and 
lending  it  at  3  or  2  per  cent,  under  the  present  market  rate  of  interest, 
the  Bank  would  reduce  the  profits  on  trade  in  the  same  proportion ; 
and  if  they  were  sufficiently  patriotic  to  lend  their  notes  at  an 
interest  no  higher  than  necessary  to  pay  the  expenses  of  their  esta¬ 
blishment,  profits  would  be  still  further  reduced  ;  no  nation,  but  by 
similar  means,  could  enter  into  competition  with  us,  we  should 
engross  the  trade  of  the  world.  To  what  absurdities  would  not  such 
a  theory  lead  us  !  Profits  can  only  be  lowered  by  a  competition  of 
capitals  not  consisting  of  circulating  medium.  As  the  increase  of 
bank  notes  does  not  add  to  this  species  of  capital,  as  it  neither 
increases  our  exportable  commodities,  our  machinery,  or  our  raw 
materials,  it  cannot  add  to  our  profits  nor  lower  interest.* 

When  any  one  borrows  money  for  the  purpose  of  entering  into 
trade,  he  borrows  it  as  a  medium  by  which  he  can  possess  himself 
of  “  materials,  provisions,  &c.,”  to  carry  on  that  trade ;  and  it  can 
be  of  little  consequence  to  him,  provided  he  obtain  the  quantity  of 
materials,  &c.,  necessary,  whether  lie  be  obliged  to  borrow  a 
thousand,  or  ten  thousand  pieces  of  money.  If  he  borrow  ten 
thousand,  the  produce  of  his  manufacture  will  be  ten  times  the 
nominal  value  of  what  it  would  have  been,  had  one  thousand  been 
sufficient  for  the  same  purpose.  The  capital  actually  employed  in 
the  country  is  necessarily  limited  to  the  amount  of  the  “  materials, 
provisions,  &c.,”  and  might  be  made  equally  productive,  though  not 
with  equal  facility,  if  trade  were  carried  on  wholly  by  barter.  The  suc¬ 
cessive  possessors  of  the  circulating  medium  have  the  command  over 
this  capital :  but  however  abundant  may  be  the  quantity  of  money 
or  of  bank  notes  ;  though  it  may  increase  the  nominal  prices  of 
commodities  ;  though  it  may  distribute  the  productive  capital  in 
different  proportions ;  though  the  Bank,  by  increasing  the  quantity 
of  their  notes,  may  enable  A  to  carry  on  part  of  the  business  for¬ 
merly  engrossed  by  B  and  C,  nothing  will  be  added  to  the  real 
revenue  and  wealth  of  the  country.  B  and  C  may  be  injured,  and 
A  and  the  Bank  may  be  gainers,  but  they  will  gain  exactly  what 
B  and  C  lose.  There  will  be  a  violent  and  an  unjust  transfer  of 
property,  but  no  benefit  whatever  will  be  gained  by  the  community. 

*  I  have  already  allowed  that  the  Bank,  as  far  as  they  enable  ns  to  turn  our  coin 
into  t;  materials,  provisions,  &c.”  have  produced  a  national  benefit,  as  they  have 
thereby  increased  the  quantity  of  productive  capital;  but  I  am  here  speaking  of  an 
excess  of  their  notes,  of  that  quantity  which  adds  to  our  circulation  without  effecting 
any  corresponding  exportation  of  coin,  and  which,  therefore,  degrades  the  notes  below 
the  value  of  the  bullion  contained  in  the  coin  which  they  represent. 


HIGH  PRICE  OF  BULLION. 


287 


For  these  reasons  I  am  of  opinion  that  the  funds  are  not  indebted 
for  their  high  price  to  the  depreciation  of  our  currency.  Their  price 
must  be  regulated  by  the  general  rate  of  interest  given  for  money. 

If  before  the  depreciation  I  gave  thirty  years’  purchase  for  land, 
and  twenty-five  for  an  annuity  in  the  stocks,  I  can,  after  the  depre¬ 
ciation,  give  a  larger  sum  for  the  purchase  of  land,  without  giving 
more  years’  purchase,  because  the  produce  of  the  land  w  ill  sell  for 
a  greater  nominal  value  in  consequence  of  the  depreciation  ;  but  as 
the  annuity  in  the  funds  is  paid  in  the  depreciated  medium,  there 
can  be  no  reason  why  I  should  give  a  greater  nominal  value  for  it 
after  than  before  the  depreciation. 

If  guineas  were  degraded  by  clipping  to  half  their  present  value, 
every  commodity  as  well  as  land  would  rise  to  double  its  present 
nominal  value ;  but  as  the  interest  of  the  stocks  would  be  paid  in 
the  degraded  guineas,  they  would,  on  that  account,  experience  no 
rise. 

The  remedy  which  I  propose  for  all  the  evils  in  our  currency,  is 
that  the  Bank  should  gradually  decrease  the  amount  of  their  notes 
in  circulation  until  they  shall  have  rendered  the  remainder  of  equal 
value  with  the  coins  which  they  represent,  or,  in  other  words,  till 
the  prices  of  gold  and  silver  bullion  shall  be  brought  down  to  their 
Mint  price.  I  am  well  aware  that  the  total  failure  of  paper  credit 
would  be  attended  with  the  most  disastrous  consequences  to  the 
trade  and  commerce  of  the  country,  and  even  its  sudden  limitation 
would  occasion  so  much  ruin  and  distress,  that  it  would  be  highly 
inexpedient  to  have  recourse  to  it  as  the  means  of  restoring  our 
currency  to  its  just  and  equitable  value. 

If  the  Bank  were  possessed  of  more  guineas  than  they  had  notes 
in  circulation,  they  could  not,  without  great  injury  to  the  country, 
pay  their  notes  in  specie,  while  the  price  of  gold  bullion  continued 
greatly  above  the  Mint  price,  and  the  foreign  exchanges  unfavour¬ 
able  to  us.  The  excess  of  our  currency  would  be  exchanged  for 
guineas  at  the  Bank,  and  exported,  and  would  be  suddenly  with¬ 
drawn  from  circulation.  Before,  therefore,  they  can  safely  pay  in 
specie,  the  excess  of  notes  must  be  gradually  withdrawn  from  circu¬ 
lation.  If  gradually  done,  little  inconvenience  would  be  felt ;  so  ^ 
that  the  principle  were  fairly  admitted,  it  would  be  for  future  con¬ 
sideration  whether  the  object  should  be  accomplished  in  one  year 
or  in  five.  I  am  fully  persuaded  that  we  shall  never  restore  our 
currency  to  its  equitable  state,  but  by  this  preliminary  step,  or  by 
the  total  overthrow  of  our  paper  credit. 

II  the  Bank  directors  had  kept  the  amount  of  their  notes  within 
reasonable  bounds  ;  if  they  had  acted  up  to  the  principle  which  they 
have  avowed  to  have  been  that  which  regulated  their  issues  when  they 
were  obliged  to  pay  their  notes  in  specie ,  namely ,  to  limit  tlicir  notes  to 
that  amount  which  should  prevent  the  excess  of  the  market  above  the 
Mint  price  of  gold ,  we  should  not  have  been  now  exposed  to  all  the  evils 
of  a  depreciated ,  and  perpetually  varying  currency. 


2SS 


HIGH  PRICE  OF  BULLION 


Though  the  Bank  derive  considerable  advantage  from  the  present 
system,  though  the  price  of  their  capital  stock  has  nearly  doubled 
since  1797,  and  their  dividends  have  proportionally  increased,  I  am 
ready  to  admit  with  Mr  Thornton,  that  the  directors,  as  monied 
men,  sustain  losses  in  common  with  others  by  a  depreciation  of  the 
currency,  much  more  serious  to  them  than  any  advantages  which 
they  may  reap  from  it  as  proprietors  of  Bank  stock.  I  do,  there¬ 
fore,  acquit  them  of  being  influenced  by  interested  motives,  but 
their  mistakes,  if  they  are  such,  are  in  their  effects  quite  as  perni¬ 
cious  to  the  community. 

The  extraordinary  powers  with  which  they  are  intrusted  enable 
them  to  regulate  at  their  pleasure  the  price  at  which  those  who  are 
possessed  of  a  particular  kind  of  property,  called  money,  shall  dis¬ 
pose  of  it.  The  Bank  directors  have  imposed  upon  these  holders 
of  money  all  the  evils  of  a  maximum.  To-day  it  is  their  pleasure 
that  4/.  10s.  shall  pass  for  3/.  17s.  104d.,  to-morrow  they  may  degrade 
4/.  lbs.  to  the  same  value,  and  in  another  year  10/.  may  not  be 
worth  more.  By  what  an  insecure  tenure  is  property  consisting  of 
money  or  annuities  paid  in  money  held !  What  security  has  the 
public  creditor  that  the  interest  on  the  public  debt,  which  is  now 
paid  in  a  medium  depreciated  15  per  cent.,  may  not  hereafter  be 
paid  in  one  degraded  50  per  cent.  ?  The  injury  to  private  creditors 
is  not  less  serious.  A  debt  contracted  in  1797  may  now  be  paid 
with  85  per  cent,  of  its  amount;  and  who  shall  say  that  the  depre¬ 
ciation  will  go  no  further? 

The  following  observations  of  Dr  Smith  on  this  subject  are  so 
important,  that  I  cannot  but  recommend  them  to  the  serious  atten¬ 
tion  of  all  thinking  men. 

“  The  raising  the  denomination  of  the  coin  has  been  the  most 
usual  expedient  by  which  a  real  public  bankruptcy  has  been  dis¬ 
guised  under  the  appearance  of  a  pretended  payment.  If  a  sixpence, 
for  example,  should,  either  by  act  of  parliament,  or  royal  proclama¬ 
tion,  be  raised  to  the  denomination  of  a  shilling,  and  twenty  six¬ 
pences  to  that  of  a  pound  sterling,  the  person  who  under  the  old 
denomination  had  borrowed  twenty  shillings,  or  near  four  ounces  of 
silver,  would,  under  the  new,  pay  with  twenty  sixpences,  or  with 
something  less  than  two  ounces.  A  national  debt  of  about  120 
millions,  nearly  the  capital  of  the  funded  debt  of  Great  Britain, 
might  in  this  manner  be  paid  with  about  64  millions  of  our  present 
money.  It  would  indeed  be  a  pretended  payment  only,  and  the 
creditors  of  the  public  would  be  defrauded  of  ten  shillings  in  the 
pound  of  what  was  due  to  them.  The  calamity,  too,  would  extend 
much  further  than  to  the  creditors  of  the  public,  and  those  of  every 
private  person  would  suffer  a  proportionable  loss  ;  and  this  without 
any  advantage,  but  in  most  cases  with  a  great  additional  loss  to  the 
creditors  of  the  public.  If  the  creditors  of  the  public,  indeed,  were 
generally  much  in  debt  to  other  people,  they  might  in  some  measure 
compensate  their  loss  by  paying  their  creditors  in  the  same  coin  in 


HIGH  PRICE  OF  BULLION. 


289 

which  the  public  had  paid  them.  But  in  most  countries  the  credi¬ 
tors  of  the  public  are  the  greater  part  of  them  wealthy  people,  who 
stand  more  in  the  relation  of  creditors  than  in  that  of  debtors  towards 
the  rest  of  their  fellow  citizens.  A  pretended  payment  of  this  kind, 
therefore,  instead  of  alleviating,  aggravates  in  most  cases  the  loss  of 
the  creditors  of  the  public ;  and  without  any  advantage  to  the  public, 
extends  the  calamity  to  a  great  number  of  other  innocent  people. 
It  occasions  a  general  and  most  pernicious  subversion  of  the  fortunes 
of  private  people ;  enriching  in  most  cases  the  idle  and  profuse 
debtor  at  the  expense  of  the  industrious  and  frugal  creditor,  and 
transporting  a  great  part  of'  the  national  capital  from  the  hands 
which  are  likely  to  increase  and  improve  it,  to  those  which  are  likely 
to  dissipate  and  destroy  it.  When  it  becomes  necessary  for  a  state 
to  declare  itself  bankrupt,  in  the  same  manner  as  when  it  becomes 
necessary  for  an  individual  to  do  so,  a  fair,  open,  and  avowed  bank¬ 
ruptcy  is  always  the  measure  which  is  both  least  dishonourable  to 
the  debtor,  and  least  hurtful  to  the  creditor.  The  honour  of  a  state 
is  surely  very  poorly  provided  for,  when,  in  order  to  cover  the 
disgrace  of  a  real  bankruptcy,  it  has  recourse  to  a  juggling  trick  of 
this  kind,  so  easily  seen  through,  and  at  the  same  time  so  extremely 
pernicious.” 

These  observations  of  Dr  Smith  on  a  debased  money  are  equally 
applicable  to  a  depreciated  paper  currency.  He  has  enumerated 
but  a  few  of  the  disastrous  consequences  which  attend  the  debase¬ 
ment  of  the  circulating  medium,  but  he  has  sufficiently  warned  us 
against  trying  such  dangerous  experiments.  It  will  be  a  circum¬ 
stance  ever  to  be  lamented,  if  this  great  country,  having  before  its 
eyes  the  consequences  of  a  forced  paper  circulation  in  America  and 
France,  should  persevere  in  a  system  pregnant  with  so  much  disas¬ 
ter.  Let  us  hope  that  she  will  be  more  wise.  It  is  said,  indeed, 
that  the  cases  are  dissimilar  :  that  the  Bank  of  England  is  indepen¬ 
dent  of  Government.  If  this  were  true,  the  evils  of  a  superabundant 
circulation  would  not  be  less  felt ;  but  it  may  be  questioned  whether 
a  bank  lending  many  millions  more  to  Government  than  its  capital 
and  savings,  can  be  called  independent  of  that  Government. 

When  the  order  of  council  for  suspending  the  cash  payments 
became  necessary  in  1797,  the  run  upon  the  Bank  was,  in  my 
opinion,  caused  by  political  alarm  alone,  and  not  by  a  superabun¬ 
dant,  or  a  deficient  quantity  (as  some  have  supposed)  of  their  notes 
in  circulation.* 

This  is  a  danger  to  which  the  Bank,  from  the  nature  of  its  insti¬ 
tution,  is  at  all  times  liable.  No  prudence  on  the  part  of  the  direc¬ 
tors  could  perhaps  have  averted  it :  but  if  their  loans  to  Government 
had  been  more  limited ;  if  the  same  amount  of  notes  had  been  issued 
to  the  public  through  the  medium  of  discounts ;  they  would  have 
been  able,  in  all  probability,  to  have  continued  their  payments  till 

*  At  that  period  the  price  of  gold  kept  steadily  under  its  Mint  price 

T 


290 


HIGH  PRICE  OF  BULLION. 


tlie  alarm  had  subsided.  At  any  rate,  as  the  debtors  to  the  Bank 
would  have  been  obliged  to  discharge  their  debts  in  the  space  of 
sixty  days,  that  being  the  longest  period  for  which  any  bill  dis¬ 
counted  by  the  Bank  has  to  run,  the  directors  would  in  that  time, 
if  necessary,  have  been  enabled  to  redeem  every  note  in  circulation. 
It  was  then  owing  to  the  too  intimate  connexion  between  the  Bank 
and  Government  that  the  restriction  became  necessary  ;  it  is  to 
that  cause,  too,  that  we  owe  its  continuance. 

To  prevent  the  evil  consequences  which  may  attend  the  perse¬ 
verance  in  this  system,  we  must  keep  our  eyes  steadily  fixed  on 
the  repeal  of  the  restriction  bill. 

The  only  legitimate  security  which  the  public  can  possess  against 
the  indiscretion  of  the  Bank  is  to  oblige  them  to  pay  their  notes 
on  demand  in  specie ;  and  this  can  only  be  effected  by  diminishing 
the  amount  of  bank  notes  in  circulation  till  the  nominal  price  of 
gold  be  lowered  to  the  Mint  price. 

Mki-e  I  will  conclude,  happy  if  my  feeble  efforts  should  awaken 
the  public  attention  to  a  due  consideration  of  the  state  of  our 
circulating;  medium.  I  am  well  aware  that  I  have  not  added  to  the 
stock  of  information  with  which  the  public  has  been  enlightened  by 
many  able  writers  on  the  same  important  subject.  I  have  had  no 
such  ambition.  My  aim  has  been  to  introduce  a  calm  and  dispas¬ 
sionate  inquiry  into  a  question  of  great  importance  to  the  State, 
and  the  neglect  of  which  may  be  attended  with  consequences  which 
every  friend  of  his  country  would  deplore. 


WIGn  PRICE  OF  BULLION. 


291 


APPENDIX. 


OBSERVATIONS  ON  SOME  PASSAGES  IN  AN  ARTICLE  IN  TIIE  ED1NBLRGF1 

REVIEW,  ON  TIIE  DEPRECIATION  OF  PAPER  CURRENCY ;  ALSO  SUGGESTIONS 

FOR  SECURING  TO  THE  PUBLIC  A  CURRENCY  AS  INVARIABLE  AS  GOLD,  WITH 

A  VERY  MODERATE  SUPPLY  OF  THAT  METAL. 

The  public  having  called  for  a  new  edition  of  this  pamphlet,  I  avail  myself  of  the 
occasion  to  consider  the  observations  which  the  Edinburgh  Reviewers,  in  the  last  number 
of  their  publication,  have  done  me  the  honour  to  make  on  some  of  the  passages  con¬ 
tained  in  it.  I  am  induced  to  do  this  from  the  conviction  that  discussion  on  every 
point  connected  with  this  important  subject  will  hasten  the  remedy  against  the  existing 
abuse,  and  will  tend  to  secure  us  against  the  risk  of  its  recurrence  in  future. 

In  the  article  on  the  depreciation  of  money,  the  Reviewers  observe,  “  The  great 
fault  of  Mr  Ricardo’s  performance  is  the  partial  view  which  he  takes  of  the  causes 
which  operate  upon  the  course  of  exchange.  He  attributes,”  they  say,  “  a  favourable 
or  an  unfavourable  exchange  exclusively  to  a  redundant  or  deficient  currency,  and 
overlooks  the  varying  desires  and  wants  of  different  societies  as  an  original  cause  of  a 
temporary  excess  of  imports  above  exports,  or  exports  above  imports.”  They  then 
comment  on  the  passage  in  which  I  have  maintained  that  a  bad  harvest  will  not  occa¬ 
sion  the  export  of  money,  unless  money  is  relatively  cheap  in  the  exporting  country, 
and  conclude  their  observations  by  giving  it  as  their  decided  opinion,  that  the  expor¬ 
tation  of  money  in  the  supposed  case  of  a  bad  harvest,  “  is  not  occasioned  by  its 
cheapness.  It  is  not,  as  Mr  Ricardo  endeavours  to  persuade  us,  the  cause  of  the 
unfavourable  balance  instead  of  the  effect.  It  is  not  merely  a  salutary  remedy  for  a 
redundant  currency :  but  it  is  owing  precisely  to  the  cause  mentioned  by  Mr  Thornton 
— the  unwillingness  of  the  creditor  nation  to  receive  a  great  additional  quantity  of 
goods  not  wanted  for  immediate  consumption  without  being  bribed  to  it  by  excessive 
cheapness ;  and  its  willingness  to  receive  bullion — the  currency  of  the  commercial 
world — without  any  such  bribe.  It  is  unquestionably  true,  as  stated  by  Mr  Ricardo,  that 
no  nation  will  pay  a  debt  in  the  precious  metals  if  it  can  do  it  cheaper  by  commodities ;  but 
the  prices  of  commodities  are  liable  to  great  depressions  from  a  glut  in  the  market ; 
whereas  the  precious  metals,  on  account  of  their  having  been  constituted  by  the  uni¬ 
versal  consent  of  society  the  general  medium  of  exchange  and  instrument  of  commerce, 
will  pay  a  debt  of  the  largest  amount  at  its  nominal  estimation,  according  to  the 
quantity  of  bullion  contained  in  the  respective  currencies  of  the  countries  in  question, 
and,  whatever  variations  between  the  quantity  of  currency  and  commodities  may  be 
stated  to  take  place  subsequent  to  the  commencement  of  these  transactions,  it  cannot 
be  for  a  moment  doubted  that  the  cause  of  them  is  to  be  found  in  the  wants  and 
desires  of  one  of  the  two  nations,  and  not  in  any  original  redundancy  or  deficiency  of 
currency  in  cither  of  them.” 

They  agree  with  me,  “  that  no  nation  will  pay  a  debt  in  the  precious  metals,  if  it 
can  do  it  cheaper  by  commodities,  but  the  prices  of  commodities,”  they  say,  “  are  liable 
to  great  depressions  from  a  glut  in  the  market;”  of  course  they  must  mean  in  the  foreign 
market,  and  then  the  words  express  the  opinion  which  they  are  endeavouring  to  con¬ 
trovert,  viz.  that  when  goods  cannot  be  sent  out  so  advantageously  as  money,  money 
will  be  exported,— -which  is  another  way  of  saying  that  money  will  never  be  exported, 
unless  it  is  relatively  redundant  with  commodities,  as  compared  with  other  countries 


202 


HIGH  PRICE  OF  BULLION. 


Yet,  immediately  after,  they  contend,  that  the  exportation  of  the  “precious  metals  is 
the  effect  of  a  balance  of  trade  *  originating  in  causes  which  may  exist  without  any 
relation  whatever  to  redundancy  or  deficiency  of  currency.”  These  opinions  appear 
to  me  directly  contradictory.  If,  however,  the  precious  metals  can  be  exported  from 
a  country  in  exchange  for  commodities,  although  they  should  be  as  dear  in  the  export¬ 
ing  as  in  the  importing  country,  what  are  the  effects  which  will  follow  from  such  im¬ 
provident  exportation  ? 

“  A  comparative  deficiency  in  one  country,  and  redundancy  in  the  other,”  say  the 
Reviewers,  p.  343,  “and  this  state  of  things  could  not  fail  to  have  a  speedy  effect  in 
changing  the  direction  of  the  balance  of  payments,  and  in  restoring  that  equilibrium 
of  the  precious  metals,  which  had  been  for  a  time  disturbed  by  the  naturally  unequal 
wants  and  necessities  of  the  countries  which  trade  with  each  other.”  Now  it  would 
have  been  well  if  the  Reviewers  had  told  us  at  what  point  this  re-action  would  com¬ 
mence, — as  at  the  first  view  it  appears  that  the  same  law  which  will  permit  money 
to  be  exported  from  a  country,  when  it  is  no  cheaper  than  in  the  importing  country, 
may  also  allow  it  to  be  exported  when  it  is  actually  dearer.  It  is  self-interest  which 
regulates  all  the  speculations  of  trade,  and  where  that  can  be  clearly  and  satisfactorily 
ascertained,  we  should  not  know  where  to  stop  if  we  admitted  any  other  rule  of  action. 
They  should  have  explained  to  us  therefore,  why,  if  the  demand  for  the  commodity 
imported  should  continue,  the  country  importing  might  not  be  entirely  exhausted  of 
its  coin  and  bullion.  What  is  under  such  circumstances  to  check  the  exportation  of 
the  currency  ?  The  Reviewers  say,  because  “  a  country  with  a  diminished  quantity 
of  bullion  would  evidently  soon  be  limited  in  its  powers  of  paying  with  the  precious 
metals.”  Why  soon  ?  Is  it  not  admitted  “  that  excess  and  deficiency  of  currency  are 
only  relative  terms  ;  that  the  circulation  of  a  country  can  never  be  superabundant,” 
(and  therefore  can  never  be  deficient),  “  except  in  relation  to  other  countries.”  Does 
it  not  follow  from  these  admissions,  that  if  the  balance  of  trade  may  become  unfavour¬ 
able  to  a  country,  though  its  currency  be  not  relatively  superabundant,  that  there  is 
no  check  against  the  exportation  of  its  coin,  whilst  any  amount  of  money  remains  in 
circulation ;  as  the  diminished  sum  (by  acquiring  a  new  value),  will  as  readily  and 
as  effectually  make  the  required  payments  as  the  larger  sum  did  before?  A  succes¬ 
sion  of  bad  harvests  might,  on  this  principle,  drain  a  country  of  its  money,  whatever 
might  be  its  amount,  although  it  consisted  exclusively  of  the  precious  metals.  The 
observation  that  its  diminished  value  in  the  importing  country,  and  its  increasing 
value  in  the  exporting  country,  would  make  it  revert  again  to  the  old  channel,  does 
not  answer  the  objection.  When  will  this  happen?  and  in  exchange  for  what  will  i; 
be  returned  ?  The  answer  is  obvious — for  commodities.  The  ultimate  result  then  of 
all  this  exportation  and  importation  of  money,  is  that  one  country  will  have  imported 
one  commodity  in  exchange  for  another,  and  the  coin  and  bullion  will  in  both  coun¬ 
tries  have  regained  their  natural  level.  Is  it  to  be  contended  that  these  results  would 
not  be  foreseen,  and  the  expense  and  trouble  attending  these  needless  operations 
effectually  prevented,  in  a  country  where  capital  is  abundant,  where  every  possible 
economy'  in  trade  is  practised,  and  where  competition  is  pushed  to  its  utmost  limits? 
Is  it  conceivable  that  money  should  be  sent  abroad  for  the  purpose  merely  of  render¬ 
ing  it  dear  in  this  country  and  cheap  in  another,  and  by  such  means  to  insure  its 
return  to  us  ? 

It  is  particularly  worthy  of  observation  that  so  deep-rooted  is  the  prejudice  which 
considers  coin  and  bullion  as  things  essentially  differing  in  all  their  operations  from 
other  commodities,  that  writers  greatly  enlightened  upon  the  general  truth  of  political 
economy  seldom  fail,  after  having  requested  their  readers  to  consider  money  and 
bullion  merely  as  commodities  subject  to  “the  same  general  principle  of  supply  and 
demand  which  are  unquestionably  the  foundation  on  which  the  whole  superstructure 
of  political  economy  is  built to  forget  this  recommendation  themselves,  and  to  argue 
upon  the  subject  of  money,  and  the  laws  which  regulate  its  export  and  import,  as 
quite  distinct  and  different  from  those  which  regulate  the  export  and  import  of  other 
commodities.  Thus  the  Reviewers,  if  they  had  been  speaking  of  coffee  or  of  sugar, 
would  have  denied  the  possibility  of  those  articles  being  exported  from  England  to  the 
Continent,  unless  they  were  dearer  there  than  here.  It  would  have  been  in  vain  to 
have  urged  to  them,  that  our  harvest  had  been  bad,  and  that  we  were  in  want  of  corn ; 
they  would  confidently  and  undeniably  have  proved  that  to  whatever  degree  the 

•  We  are  here  speaking  of  a  balance  of  trade  abstracted  from  a  balance  of  payments.  A  balance 
of  trade  may  be  favourable  whilst  a  balance  of  payments  is  unfavourable.  It  is  the  balance  of  pay¬ 
ments  only  which  operates  on  the  exchange. 


HIGH  PRICE  OF  BULLION. 


293 


scarcity  of  com  might  have  existed,  it  would  not  have  been  possible  for  England  to 
send,  or  for  France  (for  example)  to  be  willing  to  receive,  coffee  or  sugar  in  return 
for  corn,  whilst  coffee  or  sugar  cost  more  money  in  England  than  in  France.  What ! 
they  would  have  said,  do  you  believe  it  possible  for  us  to  send  a  parcel  of  coffee  to 
France  to  sell  there  for  100/.  when  that  coffee  cost  here  105/. — when  by  sending  100/. 
of  the  1 05/.  we  should  equally  discharge  the  debt  contracted  for  the  imported  corn  ? 
And,  I  say,  do  you  believe  it  possible  that  we  shall  agree  to  send,  or  France  agree  tc 
receive  (if  the  transaction  is  on  her  account)  100/.  in  money,  when  95/.  invested  in 
coffee  and  exported  will  be  equally  valuable  as  the  100/.  when  it  arrives  in  France  ? 
But  coffee  is  not  wanted  in  France,  there  is  a  glut  of  it ; — allowed,  but  money  is 
wanted  still  less,  and  the  proof  is,  that  a  hundred  pounds’  worth  of  coffee  will  sell  for 
more  than  a  hundred  pounds’  worth  of  money.  The  only  proof  which  we  can  possess 
of  the  relative  cheapness  of  money  in  two  places,  is  by  comparing  it  with  commodities. 
Commodities  measure  the  value  of  money  in  the  same  manner  as  money  measures  the 
value  of  commodities.  If,  then,  commodities  will  purchase  more  money  in  England 
than  in  France,  we  may  justly  say  that  money  is  cheaper  in  England,  and  that  it  is 
exported  to  find  its  level,  not  to  destroy  it.  After  comparing  the  relative  value  of 
coffee,  sugar,  ivory,  indigo,  and  all  other  exportable  commodities  in  the  two  markets, 
if  I  persist  in  sending  money,  what  further  proof  can  be  required  of  money  being 
actually  the  cheapest  of  all  these  commodities  in  the  English  market,  in  relation 
to  the  foreign  markets,  and  therefore  the  most  profitable  to  be  exported?  What 
further  evidence  is  necessary  of  the  relative  redundance  and  cheapness  of  money 
between  France  and  England,  than  that  in  France  it  will  purchase  more  corn, 
more  indigo,  more  coffee,  more  sugar,  more  of  every  exportable  commodity  than  in 
England  ? 

I  may,  indeed,  be  told  that  the  Reviewer's  supposition  is  not  that  coffee,  sugai, 
indigo,  ivory,  &c.  &c.,  are  cheaper  than  money,  but  that  these  commodities  and  money 
are  equally  cheap  in  both  countries,  that  is  to  say,  that  one  hundred  pounds  sent  in 
money,  or  invested  in  coffee,  sugar,  indigo,  ivory,  &c.,  &c.,  will  be  of  equal  value  in 
France.  If  the  value  of  all  these  commodities  were  so  nicely  poised,  what  would 
determine  an  exporter  to  send  the  one  in  preference  to  the  other  in  exchange  for 
corn,  in  relation  to  which  they  are  all  cheaper  in  England  ?  If  he  sends  money,  and 
thereby  destroys  the  natural  level,  we  are  told  by  the  Reviewers  that  money  would, 
on  account  of  its  increasing  quantity  in  France  and  its  decreasing  quantity  in  England, 
become  cheaper  in  France  than  in  England,  and  would  be  re-imported  in  exchange 
for  goods,  till  the  level  were  restored.  But,  would  not  the  same  effects  take  place  if 
coft'cc  or  any  of  the  other  commodities  were  exported,  whilst  they  were  equally  valuable 
in  relation  to  money  in  both  countries?  Would  not  the  equilibrium  between  supply 
and  demand  be  destroyed,  and  would  not  the  diminished  value  of  coffee,  &c.,  in  con¬ 
sequence  of  their  increased  quantity  in  France  and  their  increased  value  in  England, 
from  their  diminished  quantity,  produce  their  re-importation  into  England?  Any  of 
these  commodities  might  be  exported  without  producing  much  inconvenience  from 
their  enhanced  price ;  whereas  money,  which  circulates  all  other  commodities,  and  the 
increase  or  diminution  of  which,  even  in  a  moderate  proportion,  raises  or  falls  prices 
in  an  extravagant  degree,  could  not  be  exported  without  the  most  serious  consequences. 
Here,  then,  we  see  the  defective  principle  of  the  Reviewers.  On  my  system,  however, 
there  would  be  no  difficulty  in  determining  the  mode  in  which,  in  a  case  so  extremely 
improbable  as  that  of  an  equal  value  in  both  countries  for  all  commodities,  money 
included,  and  corn  alone  excepted,  the  returns  would  be  made  so  as  to  preserve  the 
relative  amount  and  the  relative  value  of  their  respective  currencies. 

If  the  circulating  medium  of  England  consisted  wholly  of  the  precious  metals,  and 
were  a  fiftieth  part  of  the  value  of  the  commodities  which  it  circulated,  the  whole 
amount  of  money  which  would,  under  the  circumstances  supposed,  be  exported  in 
exchange  for  corn,  would  he  a  fiftieth  part  of  the  value  of  such  corn  :  for  the  rest  we 
should  export  commodities,  and  thus  would  the  proportion  between  money  and  com¬ 
modities  be  equally  preserved  in  both  countries.  England,  in  consequence  of  a  bad 
harvest,  would  come  under  the  case  mentioned  at  page  263 — of  a  country  having 
been  deprived  of  a  part  of  its  commodities,  and  therefore  requiring  a  diminished 
amount  of  circulating  medium.  The  currency,  which  was  before  equal  to  her  pay¬ 
ments,  would  now  become  superabundant,  and  relatively  cheap,  in  the  proportion  of 
one  fiftieth  part  of  her  diminished  production  ;  the  exportation  of  this  sum,  therefore, 
would  restore  the  value  of  her  currency  to  the  value  of  the  currencies  of  other 
countries.  Thus,  it  appears  to  be  satisfactorily  proved,  that  a  bad  harvest  operates  on 
the  exchange  in  no  other  way  than  by  causing  the  currency,  which  was  before  at  its 


294 


HIGH  PRICE  OF  BULLION 


just  level,  to  become  redundant,  and  tluis  is  the  principle  that  an  unfavourable  exchange 
may  always  be  traced  to  a  relatively  redundant  currency  most  fully  exemplified. 

If  we  can  suppose  that,  after  an  unfavourable  harvest,  when  England  has  occasion 
for  an  unusual  importation  of  corn,  another  nation  is  possessed  of  a  superabundance 
of  that  article,  “  but  has  no  wants  for  any  commodity  whatever,"  it  would  unquestionable 
follow  that  such  nation  would  not  export  its  corn  in  exchange  for  commodities  ;  but 
neither  would  it  export  corn  for  money,  as  that  is  a  commodity  which  no  nation  ever 
wants  absolutely,  but  relatively,  as  is  expressly  admitted  by  the  Reviewers.  The  case 
is,  however,  impossible,  because  a  nation  possessed  of  every  commodity  necessary  for 
the  consumption  and  enjoyment  of  all  its  inhabitants  who  have  wherewithal  to 
purchase  them,  will  not  let  the  corn  which  it  has  over  and  above  what  it  can  consume, 
rot  in  its  granaries.  Whilst  the  desire  of  accumulation  is  not  extinguished  in  the 
breast  of  man,  he  will  be  desirous  to  realise  the  excess  of  his  productions,  above  his 
own  consumption,  into  the  form  of  capital.  This  lie  can  only  do  by  employing, 
himself,  or  by  loans  to  others  enabling  them  to  employ  an  additional  number  oi 
labourers,  as  it  is  by  labour  only  that  revenue  is  realised  into  capital.  If  his  revenue 
be  corn,  he  will  be  disposed  to  exchange  it  for  fuel,  meat,  butter,  cheese,  and  other 
commodities  in  which  the  wages  of  labour  are  usually  expended,  or,  which  is  the  same 
thing,  he  will  sell  his  corn  for  money,  pay  the  wages  of  his  labourers  in  money,  and 
thereby  create  a  demand  for  those  commodities  which  may  be  obtained  from  other 
countries  in  exchange  for  the  superfluous  corn.  Thus  will  be  reproduced  to  him 
articles  more  valuable,  which  he  may  again  employ  in  the  same  manner,  adding  to  his 
own  riches,  and  augmenting  the  wealth  and  resources  of  his  country. 

No  mistake  can  be  greater  than  to  suppose  that  a  nation  can  ever  be  without  wants  for 
commodities  of  some  sort.  It  may  possess  too  much  of  one  or  more  commodities  for 
which  it  may  not  find  a  market  at  home.  It  may  have  more  sugar,  coffee,  tallow, 
than  it  can  either  consume  or  dispose  of,  but  no  country  ever  possessed  a  general  glnt 
of  all  commodities.  It  is  evidently  impossible.  If  a  country  possesses  every  thing 
necessary  for  the  maintenance  and  comfort  of  man,  and  these  articles  be  divided  in 
the  proportions  in  which  they  are  usually  consumed,  they  are  sure,  however  abundant, 
to  find  a  market  to  take  them  off.  It  follows,  therefore,  that,  whilst  a  country  is  in 
possession  of  a  commodity  for  which  there  is  no  demand  at  home,  it  will  be  desirous 
of  exchanging  it  for  other  commodities  in  the  proportion  in  which  they  are  consumed. 

No  nation  grows  corn,  or  any  other  commodity,  with  a  view  to  realise  its  value  in 
money  (the  case  supposed,  or  involved  in  the  case  supposed,  by  the  Reviewers),  as 
this  would  be  the  most  unprofitable  object  to  which  the  labour  of  man  could  be 
devoted.  Money  is  precisely  that  article  which,  till  it  is  re-exchanged,  never  adds  to 
the  wealth  of  a  country ;  accordingly  we  find,  that  to  increase  its  amount  is  never  the 
voluntary  act  of  any  country  any  more  than  it  is  that  of  any  individual.  Money  is 
forced  upon  them  only  in  consequence  of  the  relatively  less  value  which  it  possesses 
in  those  countries  with  which  they  have  intercourse. 

Whilst  a  country  employs  the  precious  metals  for  money,  and  has  no  mines  of  its 
own,  it  is  a  conceivable  ease  that  it  may  greatly  augment  the  amount  of  the  produc¬ 
tions  of  its  land  and  labour  without  adding  to  its  wealth,  because  at  the  same  time  those 
countries  which  are  in  possession  of  the  mines  may  possibly  have  obtained  so  enormous  a 
supply  of  the  precious  metals  as  to  have  forced  an  increase  of  currency  on  the  indus¬ 
trious  country,  equal  in  value  to  the  whole  of  its  increased  productions.  But  by  so 
doing  the  augmented  currency,  added  to  that  which  was  before  employed,  will  be  of 
no  more  real  value  than  the  original  amount  of  currency.  Thus  then  will  this  indus¬ 
trious  nation  become  tributary  to  those  nations  which  are  in  possession  of  the  mines, 
and  will  carry  on  a  trade  in  which  it  gains  nothing  and  loses  every  thing. 

That  the  exchange  is  in  a  constant  state  of  fluctuation  with  all  countries  I  am  not 
disposed  to  deny,  but  it  does  not  generally  vary  to  those  limits  at  which  remittances 
can  be  more  advantageously  made  by  means  of  bullion  than  by  the  purchase  of  bills. 
Whilst  this  is  the  case,  it  cannot  be  disputed  'that  imports  are  balanced  by  exports. 
The  varying  demands  of  all  countries  may  be  supplied,  and  the  exchanges  of  all 
deviate  in  some  degree  from  par,  if  the  currency  of  any  one  of  them  is  either  redun¬ 
dant  or  deficient,  as  compared  with  the  rest.  Suppose  England  to  send  goods  to 
Holland,  and  not  to  find  there  any  commodities  which  suit  the  English  market;  or,  which 
is  the  same  thing,  suppose  that  we  can  purchase  those  commodities  cheaper  in  France. 
In  this  case  we  confine  our  operation  to  the  sale  of  goods  in  Holland,  and  the  purchase 
of  other  goods  in  France.  The  currency  of  England  is  not  disturbed  by  either  trans¬ 
action,  as  we  shall  pay  France  by  a  bill  on  Holland,  and  there  will  neither  be  an  excess 
of  imports  nor  of  exports.  The  exchange  may,  however,  be  favourable  to  us  with 


HIGH  PRICE  OF  BULLION. 


295 


Holland,  and  unfavourable  with  France  ;  and  will  be  so,  if  the  account  be  not  balanced 
;  by  the  importation  into  France  of  goods  from  Holland,  or  from  some  country  indebted 
I  to  Holland.  If  there  be  no  such  importation,  it  can  arise  only  from  a  relative  redun¬ 
dancy  of  the  circulation  of  Holland,  as  compared  with  that  of  France,  and  in  payment 
of  the  bill  it  will  suit  both  those  countries  that  bullion  should  be  transmitted.  If  the 
balance  be  settled  by  the  transmission  of  goods,  the  exchange  between  all  the  three 
countries  will  be  at  par.  If,  by  bullion,  the  exchange  between  Holland  and  England  will 
be  as  much  above  par  as  that  between  France  and  England  will  be  below  the  par,  and  the 
difference  will  be  equal  to  the  expenses  attending  the  passage  of  bullion  from  Holland 
to  France.  It  will  make  no  difference  in  the  result,  if  every  nation  of  the  world  were 
concerned  in  the  transaction.  England  having  bought  goods  from  France  and  sold 
goods  to  Holland,  France  might  have  purchased  to  the  same  amount  from  Italy  ;  Italy 
may  have  done  the  same  from  Russia,  Russia  from  Germany,  and  Germany  within 
100,000/.  of  the.  same  amount  from  Holland;  Germany  might  require  this  amount  of 
bullion  either  to  supply  a  deficient  currency,  or  for  the  fabrication  of  plate.  All  these 
various  transactions  woidd  be  settled  by  bills  of  exchange,  with  the  exception  of  the 
100,000/.,  which  would  be  cither  transmitted  from  an  existing  redundancy  of  coin  or 
bullion  in  Holland,  or  it  would  be  collected  by  Holland  from  the  different  currencies 
of  Europe.  It  is  not  contended,  as  the  Reviewers  infer,  “  that  a  bad  harvest,  or  the 
necessity  of  paying  a  subsidy  in  one  country  should  be  immediately  and  invariably 
accompanied  by  an  unusual  demand  for  muslins,  hardware,  and  colonial  produce,” 
as  the  same  effects  would  be  produced  if  the  country  paying  the  subsidy,  or  suffering 
from  a  bad  harvest,  were  to  import  less  of  other  commodities  than  it  had  before  been 
accustomed  to  do. 

The  Reviewers  observe,  page  345,  “  The  same  kind  of  error  which  we  have  here 
noticed  pervades  other  parts  of  Mr  Ricardo’s  pamphlet,  particularly  the  opening  of  his 
subject.  He  seems  to  think  that  when  once  the  precious  metals  have  been  divided 
among  the  different  countries  of  the  earth,  according  to  their  relative  wealth  and 
commerce,  that  each  having  an  equal  necessity  for  the  quantity  actually  in  use,  no 
temptation  would  lie  offered  for  their  importation  or  exportation,  till  either  a  new  mine 
or  a  new  bank  was  opened ;  or  till  some  marked  change  had  taken  place  in  their 
relative  prosperity.”  And  afterwards,  at  page  361,  “  We  have  already  adverted  to 
the  error  (confined,  however,  principally  to  Mr  Ricardo,  and  from  which  the  Report  is 
entirely  free)  of  denying  the  existence  of  a  balance  of  trade  or  of  payments  not  con¬ 
nected  with  some  original  redundancy  or  deficiency  of  currency.”  “  But  there  is 
another  point  in  which  almost  all  the  writers  on  this  side  of  the  question  concur,  where, 
notwithstanding,  we  cannot  agree  with  them,  and  feel  more  inclined  to  the  mercantile 
view  of  the  subject.  Though  they  acknowledge  that  bullion  occasionally  passes  from 
one  country  to  another,  from  causes  connected  with  the  exchange,  yet  they  represent 
these  transactions  as  quite  inconsiderable  in  degree.  Mr  Huskisson  observes,  ‘  that 
the  operations  in  the  trade  of  bullion  originate  almost  entirely  in  the  fresh  supplies 
|  which  are  yearly  poured  in  from  the  mines  of  the  New  World,  and  are  chiefly  confined 
to  the  distribution  of  those  supplies  through  the  different  parts  of  Europe.  If  this 
supply  were  to  cease  altogether,  the  dealings  in  gold  and  silver,  as  objects  of  foreign 
trade,  would  be  very  few,  and  those  of  short  duration.’” 

“  Mr  Ricardo,  in  his  reply  to  Mr  Bosanquet,  refers  to  this  passage  with  particular 
approbation.”  Now,  I  am  at  a  loss  to  discover  in  what  this  opinion  of  Mr  Huskisson 
differs  from  that  which  I  had  before  given,  and  on  which  the  Reviewers  had  been 
commenting. 

The  passages  are  in  substance  precisely  the  same,  and  must  stand  or  fall  together. 
If  “  wc  acknowledge  that  bullion  occasionally  passes  from  one  country  to  another 
from  causes  connected  with  the  exchange,”  we  do  not  acknowledge  that  it  would  so 
pass  till  the  exchange  had  fallen  to  such  limits  as  would  make  the  exportation  of 
bullion  profitable  ;  and  I  am  of  opinion  that  if  it  should  so  fall,  it  is  in  consequence  of 
the  cheapness  and  redundance  of  currency,  which  “  would  originate  almost  entirely 
in  the  fresh  supplies  which  are  yearly  poured  in  from  the  mines  of  the  New  World.” 
This,  then,  is  not  another  point  in  which  the  Reviewers  differ  with  me,  but  the  same. 

If  “  it  is  well  known  that  most  States,  in  their  usual  relations  of  commercial  inter¬ 
course,  have  an  almost  constantly  favourable  exchange  with  some  countries,  and  an 
almost  constantly  unfavourable  one  with  the  others,”  to  what  cause  can  it  be  ascribed 
but  to  that  mentioned  by  Mr  Huskisson  ?  “  The  fresh  supplies  of  bullion  which  are 

yearly  poured  in  (and  in  nearly  the  same  direction)  from  the  mines  of  the  New  World.” 
Dr  A.  Smith  does  not  seem  to  have  been  sufficiently  aware  of  the  powerful  and  uni¬ 
form  effects  which  this  stream  of  bullion  had  on  the  foreign  exchanges,  and  he  was 


296 


HIGH  PRICE  OF  BULLION. 


inclined  much  to  overrate  the  uses  of  bullion  in  carrying  on  the  various  roundabout 
foreign  trades  which  a  country  finds  it  necessary  to  engage  in.  In  the  early  and  rude 
transactions  of  commerce  between  nations,  as  in  the  early  and  rude  transactions 
between  individuals,  there  is  little  economy  in  the  use  of  money  and  bullion  ;  it  is  only 
in  consequence  of  civilisation  and  refinement  that  paper  is  made  to  perform  the  same 
office  between  the  commonwealth  of  nations,  as  it  so  advantageously  performs  between 
individuals  of  the  same  country.  The  Reviewers  do  not  appear  to  me  to  be  suffi¬ 
ciently  aware  of  the  extent  to  which  the  principle  of  economy  in  the  use  of  the  precious 
metals  is  extended  between  nations,  indeed,  they  do  not  seem  to  acknowledge  its  force 
even  when  confined  to  a  single  nation,  as  from  a  passage  in  page  346,  their  readers 
would  be  induced  to  suppose  their  opinion  to  be,  that  there  are  frequent  transfers  or 
currency  between  the  distant  provinces  of  the  same  country ;  for  they  tell  us  that 
“  there  have  been,  and  ever  will  be,  a  quantity  of  the  precious  metals  in  use  destined 
to  perform  the  same  part  with  regard  to  the  different  nations  connected  with  each  other 
by  commerce,  which  the  currency  of  a  particular  country  performs  with  regard  to 
its  distant  provinces.”  Now,  what  part  does  the  currency  of  a  country  perform  with 
regard  to  the  distant  provinces  ? 

I  am  well  persuaded,  that,  in  all  the  multiplicity  of  commercial  transactions  which 
take  place  between  the  distant  provinces  of  this  kingdom,  the  currency  performs  a 
very  inferior  part,  imports  being  almost  always  balanced  by  exports,*  and  the  proof 
is,  that  the  local  currency  of  the  provinces  (and  they  have  no  other)  is  seldom  circu¬ 
lated  at  any  considerable  distance  from  the  place  where  it  is  issued. 

It  appears  to  me  that  the  Reviewers  were  induced  to  admit  the  erroneous  doctrine 
of  the  merchants,  that  money  might  he  exported  in  exchange  for  commodities ,  although 
money  were  no  cheaper  in  the  exporting  country,  because  they  could  in  no  other  way 
account  for  the  rise  of  the  exchange  having,  on  some  occasions,  accompanied  the 
increased  amount  of  bank  notes,  as  stated  by  Mr  Rearse,  the  late  deputy  governor, 
and  now  governor  of  the  Bank,  in  a  paper  delivered  by  him  to  the  bullion  committee. 
They  say,  “  according  to  this  view  of  the  subject,  it  certainly  is  not  easy  to  explain  an 
improving  exchange  under  an  obviously  increasing  issue  of  notes  :  an  event  that  not 
unfrequently  happens,  and  was  much  insisted  upon  by  the  deputy  governor  of  the 
Bank  as  a  proof  that  our  foreign  exchanges  had  no  connexion  with  the  state  of  our 
currency.” 

These  arc  circumstances,  however,  which  are  not  absolutely  irreconeileable.  Mr 
Rearse,  as  well  as  the  Edinburgh  Reviewer,  appears  to  have  -wholly  mistaken  the 
principle  advanced  by  those  who  are  desirous  of  the  repeal  of  the  restriction  bill.  They 
do  not  contend,  as  they  are  understood  to  do,  that  the  increase  of  bank  notes  will  per¬ 
manently  lower  the  exchange,  but  that  such  an  effect  will  proceed  from  a  redundant 
currency.  It  remains,  therefore,  to  be  considered  whether  an  increase  of  bank  notes 
is  necessarily  at  all  times  accompanied  with  a  permanently  increased  currency,  as, 
if  I  can  make  it  appear  that  it  is  not,  there  will  be  no  difficulty  in  accounting  for  a 
rise  in  the  exchange  with  an  increased  amount  of  bank  notes. 

It  will  be  readily  admitted,  that,  whilst  there  is  any  great  portion  of  coin  in  circu 
lation,  every  increase  of  bank  notes,  though  it  will  for  a  short  time  lower  the  value  of 
the  whole  currency,  paper  as  well  as  gold,  yet  that  such  depression  will  not  be  perma 
nent,  because  the  redundant  and  cheap  currency  will  lower  the  exchange,  and  will 
occasion  the  exportation  of  a  portion  of  the  coin,  which  will  cease  as  soon  as  the 
remainder  of  the  currency  shall  have  regained  its  value  and  restored  the  exchange  to 
par.  The  increase  of  small  notes,  then,  will  ultimately  be  a  substitution  of  one 
currency  for  another,  of  a  paper  for  a  metallic  currency,  and  will  not  operate  in  the 
same  way  as  an  actual  and  permanent  increase  of  circulation. f  We  are  not,  however, 
without  a  criterion  by  which  we  may  determine  the  relative  amount  of  currency  at 
different  periods,  as  distinguished  from  bank  notes,  on  which,  though  we  cannot  infal¬ 
libly  rely,  it  will  probably  be  a  sufficiently  accurate  test  to  determine  the  question 
which  we  are  now  discussing.  This  criterion  is  the  amount  of  notes  of  5/.  and  upwards 
in  circulation,  which,  we  may  reasonably  calculate,  always  bear  some  tolerably  regular 
proportion  to  the  whole  circulation.  Thus,  if  since  1797  the  bank  notes  of  this  descrip- 


*  Part  of  the  produce  of  the  provinces  is  exported  without  any  return,  as  it  constitutes  the  revenue 
of  absentees,  but  this  consideration  can  have  no  effect  on  the  question  of  currency. 

f  That  an  increase  of  hank  notes  under  51.  should  he  considered  as  a  substitute  for  the  coins  ex¬ 
ported,  rather  than  an  actual  increase  of  circulation,  is  often  and  justly  maintained  by  those  who  oppose 
the  reasoning  of  the  bullion  report ;  but  when  these  same  gentlemen  want  to  establish  their  favourite 
theory,  that  there  is  no  connexion  between  the  amount  of  the  circulation  and  the  rate  of  exchange, 
they  do  not  forget  to  bring  to  their  aid  these  small  notes  which  they  had  before  discarded. 


HIGH  PRICE  OF  BULLION. 


297 


tion  have  increased  from  12  to  16  millions,  we  may  infer  that  the  whole  circulation 
has  increased  one-third,  if  the  districts  in  which  bank  notes  circulate  have  neither  been 
enlarged  nor  contracted.  The  notes  under  5 /.  will  be  issued  in  proportion  as  the 
metallic  currency  is  withdrawn  from  circulation,  and  will  be  further  augmented  if 
there  be  also  an  augmentation  of  notes  of  a  higher  denomination. 

If  I  am  correct  in  this  view  of  the  subject,  that  the  increase  in  the  amount  of  our 
currency  is  to  be  inferred  from  the  increased  amount  of  bank  notes  of  5/.  and  upwards, 
and  can  by  no  means  be  proved  by  an  increase  of  1/.  and  2 /.  notes  which  have  been 
substituted  in  the  place  of  the  exported  or  hoarded  guineas,  I  must  wholly  reject  the 
calculations  of  Mr  Pearse,  because  they  are  made  on  the  supposition  that  every  increase 
of  this  description  of  notes  is  an  increase  of  currency  to  that  amount.  When  it  is 
considered,  that  in  1797  there  were  no  notes  of  1/.  and  2/.  in  circulation,  but  that  their 
place  was  wholly  filled  with  guineas ;  and  that,  since  that  period,  there  have  been  no 
less  than  7  millions  issued,  partly  to  supply  the  place  of  our  exported  and  hoarded 
guineas,  and  partly  to  keep  up  the  proportion  between  the  circulation  for  the  larger 
and  for  the  smaller  payments,  we  shall  observe  to  what  errors  such  reasoning  may 
lead.  I  can  consider  the  paper  in  question  of  no  authority  whatever  as  opposed  to 
the  opinion  which  I  have  ventured  to  give,  namely,  that  an  unfavourable  balance  of 
trade,  and  a  consequently  low  exchange,  may  in  all  cases  be  traced  to  a  relatively 
redundant  and  cheap  currency.*  But  if  the  reasoning  of  Mr  Pearse  were  not  incor¬ 
rect  as  his  facts  are,  he  is  no  way  warranted  in  the  conclusions  which  he  has  drawn 
from  them. 

Mr  Pearse  states  the  increase  of  bank  notes  from  January  1808  to  Christmas  1809, 
to  have  been  from  1 7j  to  18  millions,  or  500,000/.,  the  exchange  with  Hamburgh  during 
the  same  period  having  fallen  from  34s.  9g.  to  28s.  6g.  an  increase  in  the  amount  of 
notes  of  less  than  3  per  cent.,  and  a  fall  in  the  exchange  of  more  than  18  per  cent. 

But  from  whence  did  Mr  Pearse  obtain  this  information,  of  18  millions  of  bank 
notes  only  being  in  circulation  at  Christmas  in  1809  ?  After  looking  at  every  return 
with  which  I  have  been  able  to  meet,  of  the  amount  of  bank  notes  in  circulation  at 
the  end  of  1809,  I  cannot  but  conclude  that  Mr  Pearse’s  statement  is  incorrect.  Mr 
Mushet  in  his  tables  gives  four  returns  of  bank  notes  in  the  year.  In  the  last,  for  the 


year  1809,  he  has  stated  the  amount  of  bank  notes  in  circulation  at 
Iii  the  Appendix  to  the  Bullion  Report,  and  in  returns  lately  made  to 
the  House  of  Commons,  the  amount  of  bank  notes  in  circulation 

appears  to  have  been  on  December  12,  1809 . 

On  the  1st  January  1810,  ........ 

On  the  7  th  January  1810,  . 


19,742,998 


19,727,520 

20,669,320 

19,528,030 


For  many  months  previously  to  December  it  was  not  lower.  When  I  first  dis¬ 
covered  this  inaccuracy  I  thought  Mr  Pearse  might  have  omitted  the  bank  post  bills 
in  both  estimates,  although  they  did  not  in  December  1809,  exceed  880,880/.;  but  on 
looking  at  the  return  of  bank  notes  in  circulation,  including  bank  post  bills  in  January 
1808,  I  find  Mr  Pearse  has  stated  it  larger  than  I  can  any  where  find  it :  indeed  his 
estimate  exceeds  the  return  made  by  the  Bank  for  the  1st  of  January  1808,  by  nearly 
900,000/.,  so  that  from  the  1st  of  January  1808  to  the  12th  of  December  1809,  the 
increase  was  from  16,619,240  to  19,727,520,  a  difference  of  more  than  3  millions, 
instead  of  500,000,  as  stated  by  Mr  Pearse,  and  of  2  millions  if  Mr  Pearse’s  statement 
for  any  time  in  January  1808,  be  correct. 

Mr  Pearse’s  statement,  too,  that  from  January  1803  to  the  end  of  1807,  the  amount 
of  bank  notes  had  increased  from  16i  to  18  millions,  an  increase  of  a  million  and  a 
half,  appears  to  me  to  exceed  the  fact  by  half  a  million.  The  increase  of  notes  of  5/. 
and  upwards,  including  bank  post  bills,  did  not,  during  that  period,  exceed  150,000/. 
It  is  material  that  these  errors  should  be  pointed  out,  that  those  who  may,  in  spite  of 
what  I  have  urged,  agree  in  principle  with  Mr  Pearse,  may  see  that  the  facts  of  the 
case  do  not  warrant  the  conclusions  which  that  gentleman  has  drawn  from  them,  and, 
indeed,  that  all  calculations  founded  on  the  particular  amount  of  bank  notes  for  a  day, 
or  for  a  week,  when  the  general  average  has  been  for  some  time  before,  or  some  time 
after,  greater  or  less,  will  be  of  little  avail  in  overturning  a  theory  which  has  every 
other  proof  of  its  truth.  Such  I  consider  the  theory  which  asserts  that  the  unlimited 
multiplication  of  a  currency  which  is  referable  to  no  fixed  standard  may  and  mus* 


*  It  is  not  meant  to  he  denied,  that  the  sudden  invasion  of  an  enemy,  or  a  convulsion  in  a  country 
of  any  kind  which  renders  the  possession  of  property  insecure,  may  form  an  exception  to  this  rule* 
but  the  exchar.^e  will  in  general  be  unfavourubk  to  a  country  thus  circumstanced. 


298 


HIGH  PRICE  OF  BULLION. 


produce  a  permanent  depression  of  the  exchange,  estimated  with  a  country  whose 
currency  is  founded  on  such  standard. 

Having  considered  the  weight  which  ought  to  be  attached  to  Mr  Pearse’s  paper,  I 
heg  the  reader’s  attention  to  the  tabic  which  I  have  drawn  out  from  the  statements  in 
the  Bullion  Report,  and  from  the  papers  which  have  since  been  presented  to  the  House 
of  Commons.  I  request  him  to  compare  the  amount  of  the  circulation  of  the  larger 
notes  with  the  variations  in  the  exchange,  and  I  trust  he  will  find  no  difficulty"  in 
reconciling  the  principle  maintained  by  me  with  the  actual  facts  of  the  case,  particu¬ 
larly  if  he  considers  that  the  operations  of  an  increased  currenc)r  are  not  instantaneous, 
but  require  some  interval  of  time  to  prodnee  their  full  effect, — that  a  rise  or  fall  in 
the  price  of  silver,  as  compared  with  gold,  alters  the  relative  value  of  the  currencies 
of  England  and  Hamburgh,  and  therefore  makes  the  currency  of  one  or  other  rela¬ 
tively  redundant  and  cheap  ; — that  the  same  effect  is  produced,  as  I  have  already 
stated,  by  an  abundant  or  deficient  harvest,  either  in  this  country  or  in  those  countries 
with  which  we  trade,  or  by  any  other  addition  or  diminution  to  their  real  wealth, 
which  by  altering  the  relative  proportion  between  commodities  and  money  alters  the 
value  of  the  circulating  medium.  With  these  corrections,  I  have  no  fear  but  that  it 
will  be  found  that  Mr  Pearse’s  objections  may  be  refuted  without  having  recourse  to 
the  abandonment  of  a  principle,  which,  if  yielded,  will  establish  the  mercantile 
theory  of  exchange,  and  may  be  made  to  account  for  a  drain  of  circulating  medium, 
so  great,  that  it  can  only  be  counteracted  by  locking  up  our  money  in  the  bank,  and 
absolving  the  directors  from  the  obligation  of  paying  their  notes  in  specie. 


Mr  Pearse’s  statement  as  presented  to  the  Bullion  Committee:* 


117th  February  1797, 

Rose  gradually  in  1797  and  1798  to  - 
March  1799,  ------- 

After  this  period,  great  commercial  distress,  large 
importation  of  corn,  heavy  subsidies,  and  the 
Hambro’  Exchange  continued  falling,  and  on  the 


Total  of  Bank 
notes. 
Millions. 

-  8J 

-  13 

-  13i 


Kate 

I 


of  Hambro' 
ixcliange. 
s.  a. 

35  C 
38  0 


2d  January  1S01,  was  as  low  as  - 

29  8 

Between  the  end  of  the  year  1799  to  tne  end  of 

1802,  an  increased  quantity  of  17.  and  27.  notes  | 

[  13}  1 

(  from 

33  3 

were  issued,  swelling  the  sum  total  of  all  notes  to  - 

to 

-  Fluctuation  < 

to 

(l6jj 

1  ( 

29  8 

t 

(1641 

7  from 

32  10 

From  January  1803  to  the  end  of  1807, 

to 

-  Fluctuation  -J 

to 

1 

U8  \ 

'  X 

35  10 

1 

[Tm 

I  ( from 

34  9 

From  January  1808  to  Christmas  1809, 

to 

Fall  \ 

to 

i 

18 

I 

28  6 

The  rate  of  the  Hambro’  Exchange  is  taken  from  Lloyd’s  list. 

The  average  amount  of  bank  notes  from  the  year  1797  to  1809  inclusive,  in  the 
following  table,  is  copied  from  the  Report  of  the  Bullion  Committee.  The  rates  of 
exchange  are  extracted  from  a  list  presented  by  the  Mint  to  parliament.  There  have, 
been  three  returns  made  to  parliament  by  the  Bank  of  the  amount  of  their  notes  in 
circulation  in  the  year  1810; — the  first  for  the  7th  and  12th  of  each  month;  the 
second,  a  weekly  return  from  the  19th  January  1810  to  28th  December;  and  the 
third  also  a  weekly  account  .from  the  3d  March  to  29th  December  1810.  The 
average  amount  of  notes  above  5/.,  including  bank  post  bills,  according  to  the  first 
account,  is 

£15,706,226  Of  notes  under  57.  £6,560,674 

Second,  -  -  16,192,110  6,758,895 

Third,  -  -  16,358,230  6,614,721 


3)48,256,566 


19,934,290 


General  average,  -  16,085,522 


6,644,763 


*  I  have  ^nutted  as  much  of  Mr  Pearse’s  paper  as  regarded  the  amount  of  bank  notes  in  circulation 
before  the  restriction  on  bank  payments,  because  whilst  the  public  possessed  the  power  of  obtaining 
specie  for  their  notes,  the  exchange  could  not  but  be  momentarily  lowered  by  the  amount  of  the 
bank  issues. 


HIGH  PRICE  OF  BULLION. 


299 


In  the  years  marked  thus  *  the  value  of  silver  as  compared  with  gold  exceeded  the 
Mint  valuation  ;  this  was  the  case  particularly  in  the  year  1801,  when  less  than  14  oz. 
of  silver  could  purchase  an  ounce  of  gold; — the  Mint  valuation  is  as  1  to  15.07  ;  the 
present  market  value  is  as  1  to  1 6  nearly. 


Average  amount  of  Bank  of  England  Notes  in  circulation  in  each  of  the  following 

years : 


Notes  of  51.  and 
upwards,  in¬ 
cluding  Bank 
Post  Bills. 

Notes  under  51. 

Total. 

Highest  rate  of 
Exchange  with 
Hamburgh. 

Lowest  rate  of 
Exchange  with 
Hamburgh. 

179S 

£11,527,250 

£1,807,502 

£13,334,752 

38.2 

Jan. 

37.4 

Dec. 

*1799 

12,408,522 

1,653,805 

14,062,327 

37.7 

Jan; 

31.6 

Oct. 

*1800 

13,598,666 

2,243,266 

15,841,932 

32.5 

May. 

31.- 

Feb. 

*1801 

13,454,367 

2,715,182 

16,169,594 

31.8 

Oct. 

29.8 

Jan. 

*1802 

13,917,977 

3,136,477 

17,054,4  54 

34.- 

Dec. 

32.- 

Feb. 

1803 

12,983,477 

3,864,045 

16,847,522 

35.- 

Dec. 

34.- 

Jan. 

1804 

12,621,348 

4,723,672 

17,345,020 

36.- 

J  une. 

34.8 

Feb. 

*1805 

12,697,352 

4,544,580 

17,241,932 

35.8 

March. 

32.9 

Nov. 

*1806 

12,844,170 

4,291,230 

17,135,400 

34.8 

Dec. 

33.3 

Jan.  ’ 

*1807 

13,221,988 

4,183,013 

17,405,001 

34.10 

March. 

34.2 

Sept. 

*1808 

13,402,160 

4,132,420 

17,534,580 

35.3 

July. 

32.4 

Dec. 

1809 

14,133,615 

4,868,275 

19,001,890 

31.3 

Jan. 

28.6 

Nov. 

1810 

16,085,522 

6,644,763 

22,730,285 

31.2 

June. 

28.6 

Dec. 

1811 

26.6 

Jan. 

24- 

March. 

The  Bank  have  made  a  return  of  the  amount  of  their  notes  for  eighteen  days 
in  this  present  year  1811.  The  average  amount  of  notes  of  5/.  and  upwards  in 
circulation  for  those  eighteen  days,  including  bank  post  bills,  is  £16,236,950 

And  of  those  under  5/.  .....  7,250,575 


Total  -  £23,547,525 


“If,”  say  the  Reviewers,  “considerable  portions  of  the  currency  were  taken  from 
the  idle,  and  those  who  live  upon  fixed  incomes,  and  transferred  to  farmers,  manufacturers, 
and  merchants,  the  proportion  between  capital  and  revenue  would  be  greatly  altered 
to  the  advantage  of  capital :  and  in  a  short  time  the  produce  of  the  country  would  be 
greatly  augmented.”  It  is  no  doubt  true  “that  it  is  not  the  quantity"  of  circulating 
medium  which  adds  to  the  national  wealth,  “  but  the  different  distribution  of  it.”  If, 
therefore,  we  could  be  fully  assured  that  the  effects  of  the  abundance,  and  the  conse¬ 
quent  depreciation  of  the  currency,  would  diminish  the  powers  of  consumption  in  the 
idle  and  unproductive  class,  whilst  it  increased  the  number  of  the  industrious  and 
productive  class,  the  effect  would  undoubtedly  be  to  augment  tire  national  wealth, 
as  it  would  realize  into  capital  that  which  was  before  expended  as  revenue.  But 
the  question  is,  will  it  so  operate  ?  Will  not  a  thousand  pounds  saved  by  the 
stockholder  from  his  income  and  lent  to  the  farmer,  be  equally  productive  as  if  it  had 
been  saved  by  the  farmer  himself?  The  Reviewers  observe,  “  on  every  fresh  issue  of 
notes,  not  only  is  the  quantity  of  tire  circulating  medium  increased,  but  the  distribution 
of  the  whole  mass  is  altered.  A  large  proportion  falls  into  the  hands  of  those  who 
consume  and  produce,  and  a  smaller  proportion  into  the  hands  of  those  who  only 
consume.”  But  is  this  necessarily  so  ?  They  appear  to  take  it  for  granted,  that  those 
who  live  on  fixed  incomes  must  consume  the  whole  of  their  income,  and  that  no 
part  of  it  can  be  saved  and  annually  added  to  capital.  But  this  is  very  far  from  being 
the  true  state  of  the  case ;  and  I  would  ask,  do  not  the  stockholders  give  as  great  a 
stimulus  to  the  growth  of  the  national  wealth  by  saving  half  their  incomes  and  investing 
it  in  the  stocks,  thereby  liberating  a  capital  which  will  ultimately  be  employed  by  those 
who  consume  and  produce,  as  would  be  done  if  their  incomes  were  depreciated  50  per 
cent,  by  the  issues  of  banknotes,  and  the  power  of  saving  were  inconsequence  entirely 
taken  from  them, although  theBankshouldlendtoanindustrions  man  an  amount  ofnotcs 
equal  in  value  to  the  diminished  income  of  the  stockholder?  The  difference,  and  the  only 
difference  appears  tome  to  be  this,  that  in  the  one  case  the  interest  on  the  money  lent 
would  be  paid  to  the  real  owner  of  the  property;  in  the  other,  it  would  ultimately  be 
paid  in  the  shape  of  increased  dividends  or  bonuses  to  the  Bank  proprietors  who  had 


300 


HIGH  PRICE  OF  BULLION. 


been  enabled  unjustly  to  possess  themselves  of  it.  If  the  creditor  of  the  Bank  employed 
his  loan  in  less  profitable  speculations  than  the  employer  of  the  savings  of  the  stock¬ 
holders  would  have  done,  there  would  result  a  real  loss  to  the  country ;  so  that  a 
depreciation  of  currency  may,  as  far  as  it  is  considered  as  a  stimulus  to  production,  bo 
beneficial  or  otherwise. 

I  see  no  reason  why  it  should  diminish  the  idle  and  add  to  the  productive  class  o( 
society.  At  any  rate  the  evil  is  certain.  It  must  be  accompanied  with  a  degree  of 
injustice  to  individuals  which  requires  only  to  be  understood  to  excite  the  censure  and 
indignation  of  all  those  who  are  not  wholly  insensible  to  every  honourable  feeling. 

With  the  sentiments  of  the  remainder  of  the  article  I  most  cordially  agree,  and  trust 
the  efforts  of  the  Reviewers  will  powerfully  contribute  to  overturn  the  mass  of  error 
and  prejudice  which  pervades  the  public  mind  on  this  most  important  subject. 

It  is  often  objected  to  the  recommendation  of  the  bullion  committee,  namely,  that 
the  Bank  should  be  required  to  pay  their  notes  in  specie  in  two  years,  that,  if  adopted, 
the  Bank  would  be  exposed  to  considerable  difficulty  in  providing  themselves  with  the 
requisite  amount  of  bidlion  for  such  purpose ;  and  it  cannot  be  denied,  that,  before  the 
restriction  bill  can  be  repealed,  the  Bank  would  be  in  prudence  bound  to  make  ample 
provision  for  every  demand  which  might  by  possibility  be  made  on  them. (It  is  observed 
by  the  bullion  committee,  that  the  average  amount  of  bank  notes  in  circulation, 
including  bank  post  bills,  in  the  year  1809,  was  19  millions.  During  the  same  period 
the  average  price  of  gold  was  4/.  10s., — exceeding  its  Mint  price  by  nearly  17  per 
cent.,  and  proving  a  depreciation  of  the  currency  of  nearly  15  per  cent.  A  dimi¬ 
nution,  therefore,  of  15  per  cent,  in  the  amount  of  the  Bank  circulation  in  1809, 
should,  on  the  principles  of  the  committee,  raise  it  to  par,  and  reduce  the  market  price 
of  gold  to  3/.  17s.  lO^d. ;  and  till  such  reduction  take  place,  there  would  be  imminent 
danger  to  the  Bank  as  well  as  to  the  public  that  the  restriction  bill  should  cease  to 
operate.)  Now,  admitting  (which  we  are  far  from  doing)  the  truth  of  your  principles, 
say  the  advocates  for  the  Bank  ;  admitting  that  after  such  a  reduction  in  the  amount 
of  bank  notes,  the  value  of  the  remainder  would  be  so  raised,  that  it  would  not  be  the 
interest  of  an)r  person  to  demand  specie  at  the  Bank  in  exchange  for  notes,  because 
no  profit  could  be  made  by  the  exportation  of  bullion  ;  what  security  would  the  Bank 
have  that  caprice  or  ill-will  might  not  render  the  practice  general  of  discontinuing  the 
use  of  small  notes  altogether,  and  demanding  guineas  of  the  Bank  in  lieu  of  them  ? 
Not  only,  then,  must  the  Bank  reduce  their  circulation  15  per  cent,  on  their  issues  of 
19  millions, — not  only  must  they  provide  bullion  for  4  millions  of  1).  and  2/.  notes 
which  would  remain  in  circulation,  but  they  must  also  furnish  themselves  with  the 
means  of  meeting  the  demands  which  may  be  made  on  them  to  pay  the  small  notes 
of  all  the  country  banks  in  the  kingdom, — and  all  this  within  the  short  period  of  two 
years.  It  must  be  confessed,  that,  whether  these  apprehensions  are  likely  or  not  likely 
to  be  realized,  the  Bank  could  not  but  make  some  provision  for  the  worst  that  might 
happen  ;  and  though  it  is  a  situation  in  which  their  own  indiscretion  has  involved 
them,  it  would  be  desirable,  if  possible,  to  protect  them  against  the  consequences 
of  it. 

If  the  same  benefits  to  the  public, — the  same  security  against  the  depreciation  oi 
the  currency,  can  be  obtained  by  more  gentle  means,  it  is  to  be  hoped  that  all  parties 
who  agree  in  principle  will  concur  in  the  expediency  of  adopting  them.  Let  the 
Bank  of  England  be  required  by  Parliament  to  pay  (if  demanded)  all  notes  above  20/., 
and  no  other,  at  their  option,  either  in  specie,  in  gold  standard  bars,  or  in  foreign  coin 
/allowance  being  made  for  the  difference  in  its  purity)  at  the  English  Mint  value  of 
gold  bullion,  viz.  3/.  17s.  lOAd.  per  ounce,  such  payments  to  commence  at  the  period 
recommended  by  the  committee. 

This  privilege  of  paving  their  notes  as  above  described  might  be  extended  to  the 
Bank  for  three  or  four  years  after  such  payments  commenced,  and,  if  found  advanta¬ 
geous,  might  be  continued  as  a  permanent,  measure.  Under  such  a  system  the  currency 
could  never  be  depreciated  below  its  standard  price,  as  an  ounce  of  gold  and  3/.  17s. 
I  Old.  would  be  uniformly  of  the  same  value.  By  such  regulations  we  should  effectu¬ 
ally  prevent  the  amount  of  small  notes  necessary  for  the  smaller  payments  from  being 
withdrawn  from  circulation,  as  no  one  who  did  not  possess  to  the  amount  of  20/.  at 
least  of  such  small  notes  could  exchange  them  at  the  Bank,  and  even  then  bullion, 
and  not  specie,  could  be  obtained  for  them.  Guineas  might  indeed  be  procured  at 
the  Mint  for  such  bullion,  but  not  till  after  the  delay  of  some  weeks  or  months,  the 
loss  of  interest  for  which  time  would  be.  considered  as  an  actual  expense,  an  expense 
which  no  one  would  incur  whilst  the  small  notes  could  purchase  as  much  of  every 
commodity  as  the  guineas  which  they  represented.  Another  advantage  attending  the 


HIGH  TRICE  OF  BULLION. 


301 


establishment  of  this  plan,  would  be  to  prevent  the  useless  labour  which,  under  our 
system  previously  to  1797,  was  so  unprofitably  expended  on  the  coinage  of  guineas, 
which,  on  every  occasion  of  an  unfavourable  exchange  (we  will  not  inquire  by  what 
caused),  were  consigned  to  the  melting  pot,  and,  in  spite  of  all  prohibitions,  exported 
as  bullion.  It  is  agreed  by  all  parties  that  such  prohibitions  were  ineffectual,  and  that 
whatever  obstacles  were  opposed  to  the  exportation  of  the  coin,  they  were  with  facility 
evaded. 

^"An  unfavourable  exchange  can  ultimately  be  corrected  only  by  an  exportation  of 
{roods, — by  the  transmission  of  bullion, —  or  by  a  reduction  in  the  amount  of  the  paper 
circulation.)  The  facility,  therefore,  with  which  bullion  would  be  obtained  at  the  Bank 
cannot  be 'urged  as  an  objection  to  this  plan,  because  an  equal  degree  of  facility  actually 
existed  before  1797,  and  must  exist  under  any  system  of  Bank  payments.  Neither 
ought  it  to  be  urged,  because  it  is  now  no  longer  questioned  by  all  those  who  have 
given  the  subject  of  currency  much  of  their  consideration,  that  not  only  is  the  law 
against  the  exportation  of  bullion,  whether  in  coin  or  in  any  other  form,  ineffectual, 
but  that  it  is  also  impolitic  and  unjust;  injurious  to  ourselves  only,  and  advantageous 
to  the  rest  of  the  world. 

The  plan  here  proposed  appears  to  me  to  unite  all  the  advantages  of  every  system 
of  banking  which  has  been  hitherto  adopted  in  Europe.  It  is  in  some  of  its  features 
similar  to  the  banks  of  deposit  of  Amsterdam  and  Hamburgh.  In  those  establishments 
bullion  is  always  to  he  purchased  from  the  Bank  at  a  fixed  invariable  price.  The 
same  thing  is  proposed  for  the  Bank  of  England  ;  but  in  the  foreign  banks  of  deposit, 
they  have  actually  in  their  coffers,  as  much  bullion  as  there  are  credits  for  bank  money 
in  their  books  ;  accordingly,  there  is  an  inactive  capital  as  great  as  the  whole  amount 
of  the  commercial  circulation.  In  our  Bank,  however,  there  would  be  an  amount  of 
bank  money,  under  the  name  of  bank  notes,  as  great  as  the  demands  of  commerce 
could  require,  at  the  same  time  there  would  not  be  more  inactive  capital  in  the  Bank 
coffers  than  that  fund  which  the  Bank  should  think  it  necessary  to  keep  in  bullion,  to 
answer  those  demands  which  might  occasionally  be  made  on  them.  It  should  always 
he  remembered,  too,  that  the  Bank  would  be  enabled,  by  contracting  their  issues  of 
paper,  to  diminish  such  demands  at  pleasure  In  imitation  of  the  Bank  of  Hamburgh, 
who  purchase  silver  at  a  fixed  price,  it  would  be  necessary  for  the  Bank  to  fix  a  price 
very  little  below  the  Mint  price,  at  which  they  would  at  all  times  purchase,  with  their 
notes,  such  gold  bullion  as  might  he  offered  to  them. 

The  perfection  of  banking  is  to  enable  a  country,  bv  means  of  a  paper  currency, 
(always  retaining  its  standard  value,)  to  carry  on  its  circulation  with  the  least  possible 
quantity  of  coin  or  bullion.  This  is  what  this  plan  would  effect.  And  with  a  silver 
coinage,  on  just  principles,  we  should  possess  the  most  economical  and  the  most 
invariable  currency  in  the  world.  The  variations  in  the  price  of  bullion,  whatever 
demand  there  might  be  for  it  on  the  Continent,  or  whatever  supply  might  be  poured 
in  from  the  mines  in  America,  would  be  confined  within  the  prices  at  which  the  Bank 
bought  bullion,  and  the  Mint  price  at  which  they  sold  it.  The  amount  of  the  circula¬ 
tion  would  be  adjusted  to  the  wants  of  commerce  with  the  greatest  precision;  and  if 
the  Bank  were  for  a  moment  so  indiscreet  as  to  overcharge  the  circulation,  the  check 
which  the  public  would  possess  would  speedily  admonish  them  of  their  error.  As  for 
the  country  Banks,  they  must,  as  now,  pay  their  notes,  when  demanded,  in  Bank  of 
England  notes.  This  would  be  a  sufficient  security  against  the  possibility  of  their 
being  able  too  much  to  augment  the  paper  circulation.  There  would  be  no  temptation 
to  melt  the  coin,  and  consequently  the  labour  which  has  been  so  uselessly  bestowed  by 
one  party  in  recoining  what  another  party  found  it  their  interest  to  melt  into  bullion, 
would  be  effectually  saved.  The  currency  could  neither  be  clipped  nor  deteriorated, 
and  would  possess  a  value  as  invariable  as  gold  itself,  the  great  object  which  the  Dutch 
had  in  view,  and  which  they  most  successfully  accomplished  by  a  system  very  like 
that  which  is  here  recommended. 


R  E  P  L  Y 


TO 

MR  BOSANQUE T’S 

PRACTICAL  OBSERVATIONS 


ON  TIIE 


REPORT 


OF 


THE  BULLION  COMMITTEE. 


LONDON. 


1811. 


REPLY 


TO 

Ml  BOSANQUET. 


CHAPTER  I. 

PRELIMINARY  OBSERVATIONS — MR  BOSANQUET’s  OBJECTIONS 
TO  THE  CONCLUSIONS  OF  THE  BULLION  COMMITTEE  BRIEFLY 
STATED. 


The  question  concerning  the  depreciation  of  our  currency  has 
lately  assumed  peculiar  interest,  and  has  excited  a  degree  of  atten¬ 
tion  in  the  public  mind,  which  promises  the  most  happy  results. 
To  the  Bullion  Committee  we  are  already  most  particularly  in¬ 
debted  for  a  more  just  exposition  of  the  true  principles  which 
should  regulate  the  currency  of  nations,  than  has  before  appeared 
in  any  authoritative  shape,  in  this  or  any  other  country.  It  could 
not,  however,  be  expected  that  a  reform,  so  important  as  that  which 
the  Committee  recommend,  could  be  effected  without  calling  forth 
the  warmest  opposition,  dictated  by  the  erroneous  principles  of 
some,  and  by  the  interested  views  of  others.  Hitherto  this  oppo¬ 
sition  has  been  attended  with  the  best  effects ;  it  has  tended  to 
prove  more  fully  the  correctness  of  the  principles  laid  down  by  the 
Committee  ;  it  has  called  forth  new  champions  in  the  field  of  argu¬ 
ment  :  and  discussion  has  daily  produced  new  converts  to  the  cause 
of  truth.  Of  all  the  attacks  on  the  report  of  the  Committee,  how¬ 
ever,  that  of  MrBosanquet  has  appeared  to  me  the  most  formidable. 
He  has  not,  as  his  predecessors  have  done,  confined  himself  to 
declamation  alone  :  and  though  he  disclaims  all  reasoning  and 
argument,  he  has  brought  forward,  what  he  thought  were  irrefrag¬ 
able  proofs  of  the  discordance  of  the  theory  with  former  practice. 
It  is  these  proofs  which  I  propose  to  examine,  and  I  am  confident 
that  it  will  be  from  a  deficiency  of  ability  in  me,  and  not  from  any 
fault  in  the  principles  themselves,  if  I  do  not  show  that  they  are 
wholly  unfounded.  Mr  Bosanquet  commences,  by  availing  himself 
of  the  vulgar  charge,  which  has  lately  been  so  often  countenanced, 
and  in  places  too  high,  against  theorists.  lie  cautions  the  public 

u 


30G 


REPLY  TO  MR  BOSANQUET’s  OBSERVATIONS 


against  listening  to  their  speculations  before  they  have  submitted 
them  to  the  test  of  fact ;  and  he  kindly  undertakes  to  be  their  guide 
in  the  examination.  If  this  country  had  hitherto  carried  on  trade 
by  barter,  and  it  were,  for  the  first  time,  going  to  establish  a 
system  by  which  the  intervention  of  money  should  facilitate  tlie 
operations  of  trade,  there  might  be  some  foundation  for  calling 
the  principles  which  might  be  offered  to  public  attention  wholly 
theoretical ;  because,  however  clearly  dictated  by  the  experience 
of  the  past,  their  practical  effects  would  not  have  been  witnessed. 
But,  when  the  principles  of  a  currency,  long  established,  are  well 
understood ;  when  the  laws  which  regulate  the  variations  of  the  rate 
of  exchange  between  countries  have  been  known  and  observed  for 
centuries,  can  that  system  be  called  wholly  theoretical  which  appeals 
to  those  principles,  and  is  willing  to  submit  to  the  test  of  those  laws  ? 

To  such  an  examination  the  report  of  the  Committee  is  now- 
submitted,  and  the  public  is  called  upon  to  believe  that  a  theory 
which  its  adversary  allows  to  be  unassailable  by  reasoning  and  argu¬ 
ment,  is  to  be  battered  down  by  an  appeal  to  facts.  We  are  told, 
“  that  boldly  as  the  principle  is  asserted,  and  strongly  as  reason 
appears  to  sanction  it,  that  it  is  not  generally  true,  and  is  at  vari¬ 
ance  with  fact.”  This  is  the  test  to  which  I  have  long  wished  to 
see  this  important  question  brought.  I  have  long  washed  that  those 
wdio  refused  their  assent  to  principles  which  experience  has  ap¬ 
peared  to  sanction,  would  either  state  their  own  theory  as  to  the 
cause  of  the  present  appearances  in  the  state  of  our  currency,  or  that 
they  would  point  out  those  facts  which  they  considered  at  variance 
with  that  which,  from  the  firmest  conviction,  I  have  espoused. 

To  Mr  Bosanquet,  then,  I  feel  considerably  obliged.  If,  as  I 
trust,  I  shall  be  able  to  obviate  his  objections;  to  prove  them 
wholly  untenable  ;  to  convince  him  that  his  statements  are  at  vari¬ 
ance  with  fact ;  that  for  his  supposed  proofs  he  is  indebted  to  the 
wrong  application  of  a  principle,  and  not  to  any  deficiency  in  the 
principle  itself : — I  shall  confidently  expect  that  he  will  abjure  his 
errors,  and  become  the  foremost  of  our  defenders. 

Mr  Bosanquet  has  thus  stated  the  principal  positions  of  the  Com¬ 
mittee,  to  which  he  is  induced  to  object : 

1st,  “  That  the  variations  of  the  exchange  with  foreign  countries 
can  never,  for  any  considerable  time,  exceed  the  expense  of  trans¬ 
porting  and  insuring  the  precious  metals  from  one  country  to  the 
other. 

2d,  “  That  the  price  of  gold  bullion  can  never  exceed  the  Mint 
price,  unless  the  currency  in  which  it  is  paid  is  depreciated  below 
the  value  of  gold. 

3d,  “  That,  so  far  as  any  inference  is  to  be  drawn  from  Custom¬ 
house  returns  of  exports  and  imports,  the  state  of  the  exchanges 
ought  to  be  peculiarly  favourable. 

4th,  “  That  the  Bank,  during  the  restriction,  possesses  exclusively 
the  power  of  limiting  the  circulation  of  bank  notes. 


ON  REPORT  OF  BULLION  COMMITTEE. 


307 


5th,  “  That  the  circulation  of  country  bank  notes  depends  upon, 
and  is  proportionate  to,  the  issues  from  the  Bank. 

Lastly,  “  That  the  paper  currency  is  now  excessive,  and  depre¬ 
ciated  in  comparison  with  gold,  and  that  the  high  price  of  bullion 
and  low  rates  of  exchange  are  the  consequences  as  well  as  the  sign 
of  such  depreciation.” 

These  principles  being  in  all  essential  points  the  same  as  those 
which  I  have  avowed,  and  on  which  Mr  Bosanquet  has  attacked 
me,  to  avoid  the  necessity  of  speaking  at  one  time  of  the  opinion  of 
the  Bullion  Committee,  and  at  another  of  my  own,  I  shall,  in  the 
future  pages  of  this  work,  consider  them  as  the  principles  of  the 
Bullion  Committee  only,  and  shall  take  occasion  to  mention  any 
shade  of  difference  that  may  occur  between  theirs  and  mine. 


308 


REPLY  TO  Jin  BOSANQUET’S  OBSERV ATI OKB 


CHAPTER  II. 

Jin  BOSANQUET’S  alleged  facts,  drawn  from  the  history  of 

THE  STATE  OF  EXCHANGE,  CONSIDERED. 


SECTION  I. 

Exchange  with  Hamburgh. 

The  first  position  controverted  is,  u  That  the  variations  of  the 
exchange  with  foreign  countries  can  never,  for  any  length  of  time, 
exceed  the  expense  of  transmitting  and  insuring  the  precious  metals 
from  one  country  to  the  other.’’ 

Can  this  be  called  a  theoretical  opinion,  now  brought  forward  for 
the  first  time  ?  Has  it  not  been  sanctioned  by  the  writings  of  Hume 
and  Smith  ?  and  has  it  not  been  undisputed  even  by  practical  men  ? 

Mr - ,  in  his  evidence  before  the  Bullion  Committee,  observes, 

“  that  the  extent  to  which  the  exchange  can  fall  is  the  charge  of 
transporting  bullion,  together  with  an  adequate  profit  to  the  risk 
the  transporting  such  specie  is  liable  to.” 

Mr  A.  Goldsmid  u  never  recollected  the  exchange  to  have  dif- 
fered  more  from  par  than  5  per  cent,  before  the  suspension  of  cash 
payments.” 

Mr  Grefulhe  stated,  “  that  since  he  had  been  in  business  he 
recollected  no  period  prior  to  the  suspension  of  the  cash  payments 
by  the  Bank,  when  the  exchange  was  considerably  below  par.” 

The  same  opinions  were  given  by  many  practical  men  before 
the  Lords’  Committee  in  1797. 

But  in  opposition  to  all  these  opinions,  Mr  Bosanquet  has  facts 
which  he  boldly  thinks  will  prove  the  unsoundness  of  the  doctrine. 
“  In  the  years  1764  to  1768,”  he  observes,  “  prior  to  the  recoinage, 
when  the  imperfect  state  of  the  coins  occasioned  gold  to  be  2  to  3 
per  cent,  above  the  Mint  price,  the  exchange  with  Paris  was  8  to  9 
per  cent,  against  London, — at  the  same  time  the  exchange  with 
Hamburgh  was,  during  the  whole  period,  2  to  6  per  cent,  in  favour 
of  London ;  here  appeal’s,  then,  a  profit  of  12  to  14  per  cent,  for 
the  expense,  in  time  of  peace,  of  paying  the  debt  to  Paris  with  gold 
from  Hamburgh,  which  must  have  exceeded  the  fact  by  at  least 


OX  REPORT  OF  BULLION'  COMMITTEE. 


309 


8  or  10  per  cent. ;  and  it  is  worthy  of  remark,  that  the  average 
exchange  with  Hamburgh,  for  the  years  17G6  and  1767,  of  5  per 
cent,  in  favour  of  London,  added  to  the  2  per  cent.,  the  price  of 
gold  above  the  Mint  price,  constituted  a  premium  of  7  per  cent,  on 
the  importation  of  gold  into  England,  or,  deducting  1^  per  cent 
for  expenses  in  time  of  peace,  a  net  profit  of  5  per  cent.,  yet  the 
exchange  was  not  rectified  thereby.  Again,  in  1775,  1776,  and 
1777,  after  the  recoinage,  we  find  the  exchange  on  Paris  5,  6,  7, 
and  8  per  cent,  against  London  in  time  of  peace,  when  half  the 
amount  would  have  conveyed  gold  to  Paris,  and  one-fourth  have 
paid  the  debts  of  Paris  at  Amsterdam. 

“  In  the  years  1781,  1782,  and  1783,  being  years  of  war,  the 
exchange  was  constantly  from  7  to  9  per  cent,  in  favour  of  Paris ; 
and,  during  this  period,  gold  was  the  common  circulation  of  this 
country ;  and  the  Bank  was  compelled  to  provide  it  for  the  public 
at  the  Mint  price.  It  has  been  already  shown  how  little  effect  the 
precious  metals  produced  towards  equalising  the  exchange  with 
Hamburgh  during  the  years  1797  and  1798  ;  and  another  instance 
may  be  adduced  in  the  years  1804  and  1805,  when  the  Paris 
exchange  varied  from  7  to  9  per  cent,  in  favour  of  London. 

“  In  every  case  here  cited,  the  fluctuations  of  the  exchanges 
greatly  exceeded  the  expense  of  conveying  gold  from  one  country 
to  the  other,  and  to  a  much  greater  degree  in  most  of  them  than 
in  the  present  instance ;  the  circumstances  of  the  times  were,  it  will 
readily  be  admitted,  more  favourable  to  intercourse  on  those  occa¬ 
sions  than  they  now  are,  and  the  state  of  metallic  circulation  afforded 
facilities  not  now  experienced  here.  Yet,  under  all  these  disad¬ 
vantages,  the  principle  assumed  by  the  Committee  was  not  operative, 
and  cannot  therefore  be  admitted  as  a  solid  foundation  for  the 
superstructure  of  excess  and  depreciation  attempted  to  be  raised 
upon  it.” 

If  the  facts  had  been  as  here  stated  by  Mr  Bosanquet,  I  should 
have  found  it  difficult  to  reconcile  them  with  my  theory.  That 
theory  takes  for  granted,  that  whenever  enormous  profits  can  be 
made  in  any  particular  trade,  a  sufficient  number  of  capitalists  will 
be  induced  to  engage  in  it,  who  will,  by  their  competition,  reduce 
the  profits  to  the  general  rate  of  mercantile  gains.  It  assumes  that 
in  the  trade  of  exchange  does  this  principle  more  especially  operate, 
it  not  being  confined  to  English  merchants  alone  ;  but  being  per¬ 
fectly  understood,  and  profitably  followed,  by  the  exchange  and 
bullion  merchants  of  Holland,  France,  and  Hamburgh;  and  com¬ 
petition  in  this  trade  being  well  known  to  be  carried  to  its  greatest 
height.  Does  Mr  Bosanquet  suppose  that  a  theory  which  rests  on 
so  firm  a  basis  of  experience  as  this  can  be  shaken  by  one  or  two 
|  solitary  facts  not  perfectly  known  to  us?  Even  should  no  explana¬ 
tion  of  them  be  attempted,  they  might  safely  be  left  to  produce 
their  natural  effects  on  the  public  mind. 

But  before  the  reasoning  of  the  Committee  can  be  proved  defec- 


310 


■REPLY  TO  Mil  BOSANQUET’S  OBSERVATIONS 


tivc  by  Mr  Bosanquet’s  facts,  we  must  examine  the  source  from 
whence  those  supposed  facts  are  derived. 

“  Mr  Bosanquet  tells  us  that  there  is  annexed  to  Mr  Mushet’s 
pamphlet  a  table,  showing,  1st,  The  rate  of  exchange  with  Hamburgh 
and  Paris  for  50  years  past,  and  how  much  it  has  been,  in  each 
instance,  above  or  below  par. 

2d,  “  The  price  of  gold  in  London,  and  a  comparison  of  this  price 
with  the  English  standard  or  Mint  price. 

3d,  “  The  amount  of  bank  notes  in  circulation,  and  the  rate  of 
their  assumed  depreciation,  by  a  comparison  with  the  price  of  gold.” 

Now,  the  accuracy  of  these  tables  must  be  admitted  or  proved 
before  the  conclusions,  which  result  from  the  inspection  of  them, 
can  command  assent ;  but  so  far  from  this  being  the  case,  their 
accuracy  is  disowned  by  Mr  Mushet  himself,  who,  in  the  second 
edition  of  his  pamphlet,  acknowledged  the  false  principle  upon 
which  his  first  tables  were  calculated,  and  has  given  us  a  new  and 
amended  set. 

The  following  notice  accompanied  the  second  edition  of  Mr 
Mushet’s  pamphlet : — “  In  the  first  edition  of  this  work  I  stated 
the  par  of  exchange  with  Hamburgh  at  33  schillings  and  8  grotes, 
and  at  that  considered  it  as  a  fixed  par ;  from  the  best  information 
which  I  have  been  able  to  obtain  upon  ’Change  since,  34.1 1^  are 
considered  as  the  par,  and  in  the  present  edition  I  have  stated  it 
as  such.  I  have  also  corrected  the  mistake  of  considering  the  par  to 
he  fixed;  because  gold  being  the  standard  of  the  money  of  England, 
and  silver  in  Hamburgh,  there  can  be  no  fixed  par  between  those 
two  countries ;  it  will  be  subject  to  all  the  variations  which  take 
place  in  the  relative  value  of  gold  and  silver.  For  example,  if  34 
schillings  11  grotes  and  \  of  Hamburgh  currency  be  equal  in  value 
to  a  pound  sterling,  or  j  of  a  guinea,  when  silver  is  5s.  2d.  per 
oz.,  they  can  no  longer  be  so  when  silver  falls  to  5s.  Id.  or  5s.  per 
oz.,  because  a  pound  sterling  in  gold  being  then  worth  more  silver, 
is  also  worth  more  Hamburgh  currency. 

“  To  find  the  real  par,  therefore,  we  must  ascertain  what  was 
the  relative  value  of  gold  and  silver  when  the  par  was  fixed  at 
34.1 1£,  and  what  is  the  relative  value  at  the  time  we  wish  to 
calculate  it. 

“  For  example,  if  the  price  of  standard  gold  was  3/.  17s.  l(Hd. 
per  oz.,  and  silver  5s.  2d.,  an  ounce  of  gold  would  then  be  worth 
15.07  ounces  of  silver,  being  the  Mint  proportions  ;  20  of  our 
standard  shillings  would  then  contain  as  much  pure  silver  as  34 
schillings  11  grot  es  and  but  if  the  ounce  of  gold  was  3 1.  17s.  104d., 
and  silver  5s.  (which  it  was  on  the  2d  January  1798)  the  ounce  of 
gold  would  then  be  worth  15.57  ounces  of  silver.  If  11.  sterling  at, 
par,  therefore,  be  worth  15.07  ounces  of  silver,  then  at  15.57  it 
would  be  at  3  per  cent,  premium  ;  and  3  per  cent,  premium  on 
34. 11^  is  1  schilling  1  grote  and  so  that  the  par,  when  gold  is 
to  silver  as  15.57  to  1,  will  be  36  schillings  1  grote  and 


ON  REPORT  OF  BULLION  COMMITTEE. 


311 


“  The  above  calculation  will  be  more  easily  made  by  stating  as 
follows : — 

As  15.07  :  34.1  li  :  :  15.57  :  36TV” 

As  it  is  universally  admitted  that  gold  is  the  standard  measure 
of  value  in  this  country,  and  that  silver  performs  the  same  office  at 
Hamburgh,  it  is  evident  that  no  tables  can  be  correct  which  assume 
a  fixed  invariable  par.  The  true  par  must  vary  with  every  varia¬ 
tion  in  the  relative  value  of  the  two  metals. 

There  are  some  objections,  however,  which  I  have  yet  to  offer 
against  the  perfect  accuracy  of  Mr  Mushet’s  present  tables. 

In  the  first  place,  he  has  taken  the  par  of  silver  against  silver 
too  low;  he  has  calculated  on  the  information  which  he  had  re¬ 
ceived,  that  20  standard  shillings  in  silver  contained  as  much  of 
that  pure  metal  as  thirty-four  schillings  and  llj-  grotes ;  but  ir. 
appears  by  Dr  Kelly’s  table  (Bullion  Rep.  page  207,)  that  by  actual 
assay,  as  well  as  by  computation,  20  shillings  are  of  equal  value 
with  35  schillings  and  1  grote.  This  difference  amounts  to  little 
more  than  |-  per  cent. ;  and  I  have  only  noticed  it  because  I  think 
it  highly  desirable  that  we  should  be  able,  at  all  times,  to  ascertain 
the  true  par. 

Secondly,  Mr  Mushet  has  calculated  the  degree  in  which  the 
exchange  was  above  or  below  par  by  a  reference  to  the  prices  which 
he  has  quoted  from  Lloyd’s  list.  Now,  invariably  have  those  prices 
been  for  bills  at  2^  usances,  and  as  the  par  of  exchange  is  com¬ 
puted  from  a  comparison  of  the  actual  value  of  the  coins  of  the  two 
countries,  payable  at  the  same  time  in  both,  and  not  in  one  of  them 
at  the  end  of  2i-  months,  an  allowance  for  interest  must  be  made 
for  this  period,  which  will  amount  to  about  1  per  cent.* 

A  deduction  of  If  per  cent,  must  therefore  be  made  from  the 
column  for  the  favourable  exchange  to  England  in  Mr  Mushet’s 
tables. 

There  arc  also,  in  all  calculations  on  the  true  par  of  exchange, 
other  sources  of  error,  some  of  which  will  be  presently  noticed  ;  so 
that  it  is  not  possible  to  ascertain  with  perfect  accuracy,  unless  all 
those  facts  were  before  us,  the  actual  difference  which  at  any  time 
existed  between  a  remittance  by  bullion,  and  by  the  purchase  of 
a  bill. 

To  Mr  Mushet’s  amended  tables,  thus  corrected,  I  am  willing  to 
submit  the  truth  of  the  principle  now  disputed.  It  will  then  appear, 
that  at  no  period  since  1760  has  the  exchange  with  Hamburgh  been 
more  in  favour  of  England  than  7  per  cent.,  with  one  exception 
only ;  and  the  reader  will  not  be  surprised  that  there  should  have 
been  such  an  exception,  when  he  learns  that  it  was  in  the  memor- 

*  By  Mr - ’s  evidence  to  the  Bullion  Committee  (Appendix,  page  74,)  it  appears 

that  the  course  of  exchange  from  Hamburgh  to  London  in  ordinary  times  differs  1 
Flemish  schilling  from  the  course  of  London  to  Hamburgh,  to  compensate  the  2} 
usances  and  commission  allowed  on  bills  both  ways ;  when  the  difficulties  of  commu¬ 
nication  existed  to  the  greatest  extent,  the  difference  of  exchange  was  full  2s.  Flemish. 


312 


REPLY  TO  MR  BOSANQUET'S  OBSERVATIONS 


able  year  of  1797,  just  after  the  suspension  of  cash  payments  at  the 
Bank.  At  this  period  the  currency  of  this  country  was  reduced 
particularly  low  ;  the  amount  of  bank  notes  in  circulation  being 
less  than  it  had  been  for  ten  years  preceding.  That,  under  such 
circumstances,  the  exchange  should  have  become  favourable  to 
England,  and,  consequently,  that  there  should  have  been  large  im¬ 
portations  of  bullion,  is  entirely  conformable  with  the  principle  of  the 
Bullion  Committee,  and  confirms  the  efficacy  of  the  remedy  which 
they  have  proposed.  A  great  circulation  of  paper  and  a  too  abun¬ 
dant  currency,  are  stated  by  them  to  be  the  causes  of  the  present 
nominally  low  exchange,  and  they  confidently  predict,  that  a  reduc¬ 
tion  of  its  quantity  will,  as  in  the  year  1797,  raise  the  exchange, 
and  by  that  means  render  the  importation  of  bullion  profitable. 
That  this  favourable  exchange  did,  in  the  year  1797,  produce  an 
immense  importation  of  gold  can,  by  indirect  evidence,  be  amply 
proved.  The  amount  of  foreign  gold  coined  in  his  Majesty’s 
Mint  was, 

In  the  year  1795  in  value  L. 255, 721  11  8 

179G  .  .  72,179  14  11 

1797  .  .  2,486,410  6  0 

1798  .  .  2,718,425  9  0 

1799  .  .  271,846  12  8 


But,  it  will  be  asked,  how  do  those  who  contend  that  the  exchanges 
of  a  countiy  cannot,  for  any  length  of  time,  be  either  highly  favour¬ 
able,  or  highly  unfavourable,  account  for  the  exchange  with 
Hamburgh  being  permanently  in  favour  of  England  for  two  or 
three  years  ? 

This  was  the  case,  Mr  Bosanquet  observes,  during  the  years 
1797  and  1798,  and  he  affirms  that  the  precious  metals  produced 
little  effect  in  equalising  the  exchange.  It  appears  by  Mr  Mushet’s 
amended  tables  (always  corrected  by  the  If  percent.)  that,  during 
those  years,  the  exchange  was  favourable  to  England,  and  fluc¬ 
tuated  from  5.6  to  4.3  per  cent.  But  the  principle  I  understand 
to  be  this,  that  no  country  can,  for  any  length  of  time,  have  the 
exchange  highly  favourable  or  highly  unfavourable,  because  it  sup¬ 
poses  either  such  an  increase  on  the  one  hand  in  her  stock  of  money 
and  bullion,  or  on  the  other  such  a  diminution  in  that  stock,  as 
would  destroy  that  equilibrium  in  the  value  of  the  currencies  of 
countries  which  they  naturally  have  a  tendency  to  find. 

The  assertion  is  true  when  applied  to  the  exchanges,  in  general, 
of  any  country,  but  is  false  if  the  rate  of  her  exchange  with  one 
country  only  be  considered.  It  is  possible  that  her  exchange  with 
one  particular  country  may  be  permanently  unfavourable,  in  con¬ 
sequence  of  a  continued  demand  for  bullion  ;  but  this  by  no  means 
proves  that  her  stock  of  coin  and  bullion  is  decreasing,  unless  her 
exchange  should  be  also  unfavourable  with  other  countries.  She 
may  be  importing  from  the  north  the  bullion  which  she  is  exporting 
to  the  south, — she  may  be  collecting  it  from  countries  where  it  is 


OX  REPORT  OF  BULLIOX  COMMITTEE. 


31 3 


relatively  abundant,  for  countries  where  it  is  relatively  scarce,  or 
where,  from  some  particular  causes,  it  is  in  particular  demand  ;  but 
it  bv  no  means  follows,  as  an  undeniable  consequence,  that  her  own 
stock  of  money  shall  be  reduced  below  its  natural  level.  Spain, 
for  example,  who  is  the  great  importer  of  bullion  from  America, 
can  never  have  an  unfavourable  exchange  with  her  colonies  ;  and 
as  she  must  distribute  the  bullion  she  receives  amongst  the  different 
nations  of  the  world,  she  can  seldom  have  a  favourable  exchange 
with  the  countries  with  which  she  trades.* 

Applying,  then,  these  principles  to  the  state  of  our  exchange  with 
Hamburgh  in  1797  and  1798,  we  shall  observe,  that  it  was  not  in 
consequence  of  what  is  usually  termed  a  balance  of  trade  that  the 
exchange  was  permanently  favourable  to  England ;  it  was  not 
because  Hamburgh  had  contracted  a  debt  to  us  for  the  balance  of 
commodities  which  she  had  imported,  that  she  was  necessitated  to 
pay  us  in  gold  and  silver  bullion,  but  because  sbe  could  advan¬ 
tageously  export  bullion  in  the  same  way  as  any  other  commodity, 
in  consequence  of  an  unusual  demand  for  that  article  in  England. 
This  demand  proceeded  from  two  causes  :  First,  from  the  unusually 
low  amount  of  our  currency ;  secondly,  from  the  exportation  of 
silver  to  Asia  by  the  East  India  Company. 

In  consequence  of  the  first  of  these  causes,  and  of  the  immense 
amount  of  guineas  which  at  that  period  had  been  withdrawn  from 
circulation  for  the  purpose  of  hoarding,  by  timid  people,  we  have 
already  seen  that  the  foreign  gold  coined  into  guineas  during  those 
years,  amounted  to  no  less  a  sum  than  5,200,000/.  Here,  then, 
was  a  demand  for  gold  unprecedented  in  the  history  of  the  Mint, 
and  of  itself  abundantly  sufficient  to  account  both  for  the  high 
exchange,  and  the  length  of  time  which  it  continued.  It  is  a 
practical  illustration  of  the  truth  of  a  most  satisfactory  theory. 

To  this,  however,  must  be  added,  the  demand  for  silver  bullion 
in  consequence  of  the  exportation  of  the  East  India  Company.  It 
appears,  by  the  account  delivered  to  the  Bullion  Committee  (No.  9), 
that  the  whole  amount  of  foreign  silver  coin,  exported  by  the 
Company  on  their  own  account,  as  well  as  on  account  of  private 
persons,  amounted 


In  the  year  1795 

to 

151,795  ounces. 

1796 

to 

290,777 

1797 

to 

962,880 

1798 

to 

3,565,691 

1799 

to 

7,287,327 

From  this  time  the  exportation  of  silver  to  the  East  Indies  was 
considerably  reduced,  and  has  now  almost  wholly  ceased.  Thus, 
then,  it  appears  that  a  high  exchange  was  followed  by  an  unusually 

*  Mr  Huskisson  has  commented  with  great  ability  upon  the  few  transactions — few 
comparatively — which  take  place  in  bullion,  and  has  observed,  that  those  transactions 
arc  principally  confined  to  the  distribution  of  the  produces  of  the  mines  to  the  different 
countries  where  gold  and  silver  are  ;n  use. 


314 


REPLY  TO  MR  BOSANQUET’S  OBSERVATIONS 


great  importation  of  bullion,  and  that,  when  that  demand  ceased, 
the  exchange  regained  its  natural  level.  On  a  further  inspection 
of  the  table,  it  will  appear,  that  in  proportion  as  the  amount  of 
bank  notes  increased,  the  exchange  became  depressed,  and  was  in 
1801  more  than  11  percent,  against  England;  and  at  the  same 
time  the  price  of  gold  bullion  rose  to  4 1.  Gs.— more  than  10  per 
cent,  above  the  Mint  price.* 

It  must  be  confessed,  that  from  September  1766  to  September 
1767,  the  exchange  continued  permanently  in  favour  of  England 
from  7.4  to  6.8  per  cent. ;  and  from  that  period  to  September  1768, 
it  continued  generally  favourable  above  3  per  cent. ;  but  what 
circumstances  in  the  situation  of  Europe  might  then  have  made  it 
profitable  for  England  to  become  the  agent  in  collecting  bullion 
from  Hamburgh  for  some  other  country,  it  is  not  now  material  to 
inquire.  Of  this  I  am  fully  assured,  that,  if  all  the  circumstances 
were  fairly  before  us,  it  might  be  satisfactorily  explained. 

But  whether  explained  or  not  explained,  it  proves  nothing  in 
favour  of  Mr  Bosanquet’s  theory  (for  theory  Mr  Bosanquet  has 
just  as  much  as  the  Committee) :  it  only  proves  that  the  precious 
metals  might  continue  to  be  imported  from  one  quarter  while  they 
were  exported  to  another  ;  which  the  theory  of  the  Committee  not 
only  allows,  but  requires.  To  prove  anything  in  favour  of  Mr 
Bosanquet’s  theory,  it  must  be  proved  that  the  precious  metals 
came  in  permanently  in  greater  proportion  than  they  a  vent  out; 
not  from  one  place  only,  but  from  all  places  taken  together. 

The  following  considerations  go  a  certain  vvay  in  accounting  for 
the  phenomena  which  have  misled  Mr  Bosanquet :  the  tables  of 
Mr  Mushet  are  calculated  on  a  comparison  of  the  relative  value 
of  silver  with  bar  gold.  Now,  bar  gold  is  generally  2s.  or  3s.  per 
ounce  worse  in  price  than  gold  in  coin ;  and,  therefore,  if  the  gold 
imported  be  intended  for  re-exportation,  the  true  par  will  differ 
from  2  to  3  per  cent.,  according  as  the  calculation  is  made  by 
reference  to  coined  or  to  bar  gold.f 

*  Lord  King  satisfactorily  accounted  for  the  long  duration  of  an  exchange  favourable 
to  this  country  with  Hamburgh,  from  the  circumstance  of  the  demands  of  the  India 
Company  for  silver  bullion  for  their  settlements  in  the  East.  Mr  Blake  comments, 
in  his  late  publication,  upon  what  he  calls  “  the  erroneous  opinions”  entertained  by 
Lord  King  on  this  subject,  and  observes,  “  that  the  exportation  of  bullion  is  affected 
like  that  of  any  other  commodity,  when  there  is  such  a  difference  in  its  real  prices,  at 
any  two  places,  as  will  afford  a  profit  on  its  transit ;  an  occurrence  that  will  frequently 
take  place  with  an  exchange  at  par.”  An  occurrence,  I  should  say,  which  can  never 
take  place  with  an  exchange  at  par.  Who  would  send  bullion  from  Hamburgh  to 
London  at  an  expense  of  4  or  5  per  cent.,  whilst  the  exchange  was  at  par,  when  by 
means  of  a  bill  he  could  obtain  the  same  amount  of  bullion  in  London  free  from  all 
charges  ? 

I  am  happy  that  an  opinion  similar  to  that  which  I  have  expressed  is  also  enter¬ 
tained  by  Mr  Bosanquet,  page  1 2 : — “  In  the  event  of  an  unfavourable  balance  of 
payments,  the  depression  of  the  exchange  must  necessarily  attain  this  limit  (the 
expenses  of  conveying  and  insuring  the  precious  metals  from  one  country  to  the  other) 
before  the  balance  can  be  adjusted  by  the  exportation  of  gold.” 

f  Mr  Mushet’s  calculations  take  for  granted,  that  the  relative  value  of  gold  and 
silver  was  the  same  in  both  countries,  and  that  the  gold  and  silver  were  of  the  same 


ON  REPORT  OF  BULLION  COMMITTEE. 


315 


When  money  is  wanted  for  our  own  circulation,  I  do  not  object 
to  the  calculation  of  the  true  par  of  exchange  being  made,  on  a 
comparison  of  the  relative  value  of  the  silver  of  the  foreign  country 
with  the  value  of  standard  gold  bars  in  this ;  but  in  that  case  there 
must  be  added  to  the  amount  of  expenses  attending  the  trans¬ 
portation  of  the  silver,  the  interest  which  the  purchaser  of  gold 
will  lose,  during  the  detention  of  the  gold  in  the  Mint  whilst  coin¬ 
ing  into  money.  The  natural  destination  of  a  great  part  of  all  the 
bar  gold  is  to  some  of  the  Mints  of  Europe,  as  it  is  in  the  state  of 
coin  only  that  gold  can  be  made  productive  of  interest  to  the 
owner.  In  comparing,  therefore,  the  value  of  the  currency  of  one 
country  with  the  value  of  bullion  in  another,  we  must  not  leave 
out  of  our  consideration  the  trifling  superior  value  which  coin 
bears  above  bullion  in  the  importing  country.  Thus,  if  a  merchant 
in  Hamburgh  were  indebted  11.  sterling  to  a  merchant  in  England, 
and  should  export  to  England  as  much  silver  as  would  purchase 
the  quantity  of  gold  contained  in  1 1.,  he  Mould  not  be  able  to 
discharge  his  debt  till  the  gold  Mere  manufactured  into  coin.  In 
addition,  then,  to  his  other  expenses,  the  interest  M’hich  he  would 
have  to  pay  to  his  creditor  till  the  coin  Mras  returned  to  him,  M  ould 
enter  into  his  calculation  at  the  time  that  he  M'as  making  a  com¬ 
parison  of  the  advantages  which  Mrould  attend  either  the  purchase 
of  a  bill,  or  the  remittance  of  bullion. 

This  loss  of  interest  the  Bullion  Committee  have  estimated  at 
1  per  cent. 

If  these  principles  are  correct,  there  must  be  deducted  from  the 
favourable  Hamburgh  exchanges  of  Mr  Mushet’s  tables  1  per  cent, 
more  than  we  have  already  stated,  M7hen  the  bullion  is  wanted  for 
our  own  coin,  and  from  2  to  3  per  cent,  when  it  is  required  for 
re-exportation.  It  is  also  necessary  to  observe,  that  the  relative 
value  of  gold  to  silver  is  constantly  varying  in  all  countries,  though 
always  tending  in  all  to  an  equality  of  value  ;  and  that  the  test  of 
our  currency  being  depreciated,  is  more  certainly  proved  by  the 
high  market  price  of  bullion  than  by  the  Iom7  exchanges.* 

description,  viz.  in  bars.  But  it  is  chiefly  by  the  value  of  gold  in  coin  that  a  foreigner 
determines  whether  he  shall  export  gold  to  this  country,  or  make  a  remittance  by  bill ; 
and  the  price  of  gold  in  coin  in  England  must  necessarily  enter  into  his  calculation. 
On  a  reference  to  the  Appendix  of  the  Bullion  Report,  No.  6,  it  will  appear  that  the 
transactions  in  gold  with  the  Continent  are  mostly  confined  to  gold  in  coin.  For 
fifteen  months,  ending  in  March  1810,  the  whole  amount  of  sales  of  bar  gold,  by 
private  dealers,  transacted  through  the  Bullion  Office  at  the  Bank,  did  not  exceed  in 
value  60,867/.,  whilst  the  sales  of  gold  in  coin  during  the  same  period  amounted  to 
683,067/. 

*  I  have  read  in  a  small  French  tract,  “Sur  l’lnstitution  dcs  Principales  Banques 
de  l’Europe,”  that  on  one  occasion  the  Bank  of  Hamburgh  was  obliged  to  suspend 
its  payments,  in  consequence  of  having  made  too  great  advances  on  gold  bullion.  I 
have  in  vain  endeavoured  to  find  out  in  what  year  this  occurred.  It  is  evident  that  a 
circumstance  of  this  sort  must  have  had  some  influence  on  the  exchange, — and  it  is 
not  impossible  that  it  might  have  happened  in  the  years  1766,  1767. 


31 G 


REPLY  TO  MR  BOSANQUET’S  OBSERVATIONS 


SECTION  II. 

Exchange  with  Paris. 

Having  thus  examined  the  objections  made  by  Mr  Bosanquet  to 
the  conclusions  of  the  Committee,  as  far  as  the  exchanges  with 
Hamburgh  are  concerned,  I  shall  now  proceed  to  consider  the 
circumstances  which  appear  to  him  to  be  at  variance  with  the 
principle  I  am  defending,  in  the  account  of  the  exchanges  between 
this  country  and  Paris. 

In  the  consideration  of  the  par  of  exchange  with  Hamburgh, 
the  principle  on  which  it  is  calculated  is  easy  and  simple;  not  so 
that  with  Paris.  The  difficulty  proceeds  from  this  :  that.  France 
as  well  as  England  has  two  metals,  gold  and  silver,  in  circulation, 
both  of  which  are  legal  tender  in  all  payments. 

In  my  former  publication  I  endeavoured  to  explain  the  principles 
which  appeared  to  me  to  fix  the  standard  measure  of  value  in  a 
country  where  silver  and  gold  are  both  in  circulation,  and  both  a 
legal  tender. 

Lord  Liverpool  supposed,  that  when  gold  became  the  standard 
measure  of  value  in  this  country,  it  arose  from  some  capricious 
preference  of  the  people  to  gold;  but  it  can,  I  think,  be  clearly 
proved  that  it  was  caused  entirely  from  the  circumstance  of  the 
market  value  of  silver  relatively  to  gold  having  become  greater 
than  the  Mint  proportions.  This  principle  is  not  only  most  fully 
admitted,  but  also  most  ably  illustrated  by  his  lordship. 

The  Mint  will  coin  an  ounce  of  gold  into  3^.  17s.  10^d.  of  gold 
money,  and  they  will  also  coin  15.07  ounces  of  silver  into  the  same 
amount  of  silver  money.  What  is  it,  then,  that  determines  the 
Bank  or  any  individual  to  carry  an  ounce  of  gold  in  preference  to 
15.07  ounces  of  silver  to  the  Mint  to  be  coined,  as  they  are  both  by 
law  equally  useful  to  discharge  a  debt  to  the  amount  of  3bl7s.l0^d.? 
No  other  consideration  but  their  interest.  If  15.07  ounces  of  silver 
can  be  purchased  for  less  than  an  ounce  of  gold,  silver  will  be  coined ; 
and  if  an  ounce  of  gold  can  be  procured  for  less  than  15.07  ounces 
of  silver,  gold  will  be  taken  to  the  Mint  for  that  purpose. 

In  the  first  case  silver  will  become  the  measure  of  value;  in  the 
second,  gold. 

Now,  as  the  relative  market  value  of  these  metals  is  subject  to 
constant  variation,  gold  or  silver  may  alternately  become  the  stand¬ 
ard  measure  of  value.  Since  the  recoinage  of  silver,  in  the  reign  of 
King  William,  gold  has  almost  uniformly  been  of  less  value  than 
15.07  ounces  of  silver,  and  consequently  gold  has,  since  that  period, 
been  the  standard  of  value  in  this  country.  In  the  year  1798,  the 
coinage  of  silver  was  altogether  prohibited  by  law.  Whilst  that 
law  remains  in  force  gold  must  necessarily  be  the  standard  measure, 


ON  REPORT  OF  BULLION  COMMITTEE. 


317 


whatever  may  be  the  variations  in  the  relative  value  of  the  two 
metals.* 

Whichever  metal  is  the  standard  measure  of  value,  it  will  also 
regulate  the  par  of  exchange  with  foreign  countries,  because  it  will 
be  in  that  metal,  or  in  paper  currency  representing  that  metal,  that 
oills  will  be  paid. 

In  France  there  are  also  two  metals  in  circulation,  and  both  legal 
tender  to  any  amount.  The  relative  value  of  gold  to  silver  in  the 
coins  of  France,  previously  to  the  Revolution,  was  as  15  to  1 
(Bullion  Report,  No.  59),  and  is  now  154  to  1 ;  but  we  are  informed 
by  a  letter  of  Mr  Grefulhc  to  the  Bullion  Committee  (No.  56),  that 
in  1785,  an  alteration  bad  been  made  in  the  number  of  louis  which 
were  coined  from  a  marc  of  gold,  that  number  having  been  increased 
from  30  to  32.  Previously  to  1785,  therefore,  gold  must  have 
been  valued  in  the  French  Mint  somewhere  about  14  to  1.  For 
the  same  reasons  that  the  standard  of  value  was  subject  to  change 
from  gold  to  silver,  and  from  silver  to  gold,  in  England,  it  M  ould 
also  be  subject  to  do  so  in  France.  1)41011  the  relative  value  of 
gold  to  silver  was  under  14  to  1,  gold  would  have  become  the 
standard  measure  of  value  in  France,  and,  consequently,  the  rate  of 
exchange  with  England  would  have  been  estimated  by  a  compa¬ 
rison  of  the  gold  coins  of  the  two  countries.  When  above  14,  and 
under  15.07  to  1,  gold  would  have  been  the  standard  in  England, 
and  silver  in  France,  and  the  exchange  rated  accordingly.  The 
par  would  then  have  been  fixed  by  a  comparison  of  the  gold  of 
England  with  the  silver  of  France.  And  when  the  relative  value 
was  above  15.07  to  1,  silver  would  have  been  the  standard  in  both 
countries.  The  exchange  would  then  have  been  rated  in  silver. 
But  after  1785,  when  the  Mint  valuation  of  the  metals  was  altered 
in  France,  and  became  nearly  the  same  as  that  of  England,  the  par 
of  exchange  would  have  been  reckoned  either  in  gold  or  in  silver 
in  both  countries. 

I  have  already  observed  that,  to  compare  the  amount  of  deviation 
of  the  exchange  from  par  with  the  expenses  of  transmitting  the 
precious  metals  from  one  country  to  the  other,  is  not  sufficient  to 
prove  that  such  trade  would  be  profitable,  wre  must  also  consider 
what  the  price  of  bullion  is  in  the  country  to  which  it  is  trans¬ 
mitted,  or  the  amount  of  expense  which  would  be  incurred  in 
procuring  the  bullion  to  be  coined  into  money.  In  this  country 
no  seignorage  is  charged.  If  an  ounce  of  gold  or  silver  is  carried 
to  the  Mint,  an  ounce  of  coined  money  is  returned.  The  only  in- 

*  The  Bullion  Committee,  as  well  as  Mr  Huskisson,  consider  gold  as  the  standard 
measure  of  value,  in  consequence'of  the  39th  of  the  King,  which  declares  that  silver 
shall  not  be  a  legal  tender  for  sums  exceeding  25/.,  except  by  weight,  at  the  rate  of 
5s.  2d.  per  ounce.  But  this  law  would  not  have  prevented  the  coinage  of  silver  when 
under  its  Mint  price,  and,  therefore,  under  its  Mint  relative  value  to  gold.  In  1798. 
for  example,  when  the  price  of  silver  was  5s.  per  ounce,  and  the  relative  market  value 
of  silver  to  gold  as  1  to  15.57,  and  when  therefore  silver  could  be  profitably  coined, 
’.lie  new  silver  fresh  from  the  Mint  would  have  been  a  legal  tender  to  any  amount. 


318 


REPLY  TO  ME  BOSANQUET’S  OBSERVATIONS 


convenience,  therefore,  that  an  importer  of  bullion  can  experience  in 
receiving  bullion  from  abroad,  instead  of  the  money  of  England,  is 
the  delay  during  its  detention  at  the  Mint,  and  which  the  Bullion 
Committee  have  valued  at  1  per  cent.  One  per  cent,  appears, 
therefore,  to  be  the  natural  value  of  English  coin  above  bullion, 
provided  the  coin  be  not  debased,  and  the  currency  be  not  ex¬ 
cessive.  But  in  France  the  seignorage,  according  to  Dr  Smith, 
amounted  to  no  less  than  8  per  cent.,  besides  the  loss  of  interest 
during  its  detention  at  the  MinJ.  And  we  have  his  authority,  too, 
that  no  sensible  inconvenience  resulted  from  it.*  An  ounce  of  gold 
or  silver  coin  was  in  France,  therefore,  of  more  value  by  8  per 
cent,  than  an  ounce  of  gold  or  silver  bullion.  It  results  from  these 
facts  that  no  bullion  could  have  been  imported  into  France,  unless 
there  was  not  only  a  profit  equal  to  the  expenses  attending  its  impor¬ 
tation,  but  a  further  profit  of  8  per  cent.,  the  par  of  exchange  being- 
calculated  not  on  the  value  which  the  coin  actually  passed  for  in 
currency,  but  on  its  intrinsic  value  as  bullion.f 

To  make  this  appear  more  evident,  let  us  suppose  that  the  ex¬ 
change  with  London  was,  as  Mr  Bosanquet  informs  us,  8  per  cent, 
in  favour  of  France,  in  the  year  1767,  and  that  at  the  same  time  it 
was  6  per  cent,  in  favour  of  London  with  Hamburgh,  and  that  the 
expenses  of  sending  gold  from  Hamburgh  to  Paris  were  no  more 
than  1-^-  percent.  Will  it  not  be  cheaper,  he  asks,  by  12^  percent, 
to  pay  the  debt  at  Paris,  by  sending  the  gold  from  Hamburgh,^ 
than  by  remitting  a  bill  ?  1  answer,  No  ;  because,  when  the  gold 

arrives  at  Paris,  it  must  either  be  coined  into  money,  or  sold  as 
bullion.  If  it  be  coined  into  money,  8  per  cent,  must  be  paid  to 
the  Mint ;  if  it  be  sold  as  bullion,  it  will  sell  at  8  per  cent,  under 
the  Mint  price.  §  The  profit,  then,  if  all  the  other  calculations  be 

*  Siuce  writing  tlic  above,  I  have  seen  an  extract  from  a  Monlteur  of  the  year 
1803,  by  which  it  appears  that  the  seignorage  in  France  was 

In  1 726  on  gold  7—  per  cent,  on  silver  7-j^ 


1729 

5-3- 

”16 

r;  7 

°T6 

1755 

4*  • 

QIO 

.  .  1 

1771 

H 

97 

1785 

2-9- 

17 

. - 

And  was  fixed  in  1803  at  ^  per  cent,  for  gold,  and  LV  for  silver. 

f  It  is  only  whilst  the  currency  of  France  was  kept  at  its  proper  level  that  the  price 
of  gold  could  continue  8  per  cent,  under  the  Mint  price,  in  the  same  manner  as  the 
price  of  gold  would  and  did  continue  under  the  Mint  price  of  England.  The  currency 
of  England  was  rather  above  its  level  when  gold  was  3/.  17s.  6d.,  as  4d.  an  ounce  is 
not  sufficient  compensation  for  the  delay  of  the  Mint.  It  follows,  therefore,  that  the 
principle  here  contended  for  can  only  have  its  full  force  whilst  the  currency  is  not 
excessive. 

J  As  silver  is  the  currency  of  Hamburgh,  it  would  he  silver,  and  not  gold,  which 
an  English  creditor  would  be  entitled  to  send  from  Hamburgh  to  Paris. 

§  “  In  France,  a  duty  of  8  per  cent,  is  deducted  for  the  coinage,  which  not  only 
defrays  the  expense  of  it,  hut  affords  a  small  revenue  to  the  Government.  In  England, 
as  the  coinage  costs  nothing,  the  current  coin  can  never  be  much  more  valuable  than 
the  quantity  of  bullion  which  it  actually  contains.  In  France,  the  workmanship,  as  you 
pay  tor  it,  adds  to  the  value,  in  the  same  manner  as  to  that  of  wrought  plate.  A  sum  of 
French  money,  therefore,  containing  a  certain  weight  of  pure  silver,  is  more  valuable 
than  a  sum  of  English  money  containing  an  equal  weight  of  pure  silver,  and  must 


ON  EEPOET  OF  BULLION  COMMITTEE. 


319 


correct,  will  be  reduced  from  12^  to  4J  per  cent.  But  they  are  not 
correct,  being  subject  to  further  deductions  from  the  causes  already 
stated. 

Keeping  these  principles  in  view,  it  will,  I  believe,  appear,  that 
the  exchange  with  Paris  was  in  favour  of  England  during  a  great 
portion  of  the  four  years,  from  1764  to  1768,  and  at  all  the  other 
periods  mentioned  by  Mr  Bosanquet. 

I  cannot  help  here  observing,  that  it  must  excite  astonishment, 
that  a  British  merchant  should  seriously  believe  it  possible,  that, 
in  time  of  peace,  a  net  profit,  after  paying  all  expenses,  of  from 
10|  to  124  per  cent,  should  have  been  made  by  the  exportation  of 
gold  from  Hamburgh  to  Paris  during  four  years : — a  profit,  which, 
from  the  quick  returns,  would  have  enabled  any  person  engaging 
in  such  undertakings  to  have  cleared  more  than  100  per  cent,  per 
annum  on  the  capital  employed  ;  and  that  too  in  a  trade,  the  slightest 
fluctuations  of  which  are  watched  by  a  class  of  men  proverbial  for 
their  shrewdness,  and  in  which  competition  is  carried  to  the  greatest 
extent.  For  any  man  to  compare  the  account  of  the  Hamburgh 
exchange,  and  of  the  Parisian,  and  not  to  see  that  the  accounts 
were  incorrect,  that  the  facts  could  not  be  as  so  stated,  is  very  like 
a  man  who  is  all  for  fact  and  nothing  for  theory.  Such  men  can 
hardly  ever  sift  their  facts.  They  are  credulous,  and  necessarily  so, 
because  tbey  have  no  standard  of  reference.  Those  two  sets  of 
supposed  facts,  those  in  the  Hamburgh  exchange  on  the  one  hand, 
and  those  in  the  Parisian  on  the  other,  are  absolutely  inconsistent, 
and  disprove  one  another.  That  facts  such  as  these  should  be 
brought  forward  to  invalidate  a  theory,  the  reasonableness  of  which 
is  allowed,  is  a  melancholy  proof  of  the  power  of  prejudice  over 
very  enlightened  minds. 


SECTION  III. 

Supposed  Fact  of  a  Premium  on  English  Currency  in  America — Favourable 
Exchange  with  Sweden. 

The  next  point  on  which  I  wish  to  make  a  few  observations,  is 
that  first  mentioned  by  Mr  Grefulbe,  and  now  brought  forward  by 
Mr  Bosanquet.  I  allude  to  the  premium  which  it  is  asserted  was 

require  more  bullion,  or  other  commodities,  to  purchase  it.  Though  the  current  coin 
of  the  two  countries,  therefore,  were  equally  near  the  standards  of  their  respective 
Mints,  a  sum  of  English  money  could  not  well  purchase  a  sum  of  French  money,  con¬ 
taining  an  equal  number  of  ounces  of  pure  silver,  nor,  consequently,  a  hill  upon  France 
for  such  a  sum.  If,  for  such  a  bill,  no  more  additional  money  was  paid  than  what 
was  sufficient  to  compensate  the  expense  of  French  coinage,  the  real  exchange  might 
be  at  par  between  the  two  countries,  their  debts  and  credits  might  mutually  com¬ 
pensate  one  another,  while  the  computed  exchange  was  considerably  in  favour  of 
France.  If  less  than  this  was  paid,  the  real  exchange  might  he  in  favour  of  England, 
while  the  computed  was  in  favour  of  France.” — Wealth  of  ' Nations,  Chap.  iii.  Book  iv 


320 


REPLY  TO  MR  BOSANQUEX’S  OBSERVATIONS 


given  in  America,  in  hard  dollars,  for  the  depreciated  currency  of 
England.  I  have  examined  this  fact  with  the  greatest  attention, 
and  to  me  it  appeal’s  evident;  first,  that  the  price  which  was  called 
a  premium  of  9  per  cent,  given  for  a  bill  upon  England,  teas  really 
a  discount  of  3^  per  cent.;  and,  secondly,  that  at  that  price  it  was 
a  cheaper  remittance  than  if  the  dollars  with  which  the  bill  was 
bought  had  been  exported. 

The  par  of  exchange  with  America  is  reckoned  in  dollars;  the 
par  is  called  4s.  6d.  sterling  for  a  dollar,  consequently  444.4  dollars 
ought  to  contain  as  much  pure  silver  as  100/.  sterling.  But  this  is 
not  the  fact.  An  American  dollar,  according  to  the  Mint  regulation 
of  America,  ought  to  weigh  17  dwt.  8  grains,  and  is  84  grains 
worse  than  English  standard  silver;  consequently,  the  value  of  an 
American  dollar  in  our  standard  silver  is  4s.  3fd.  According  to 
this  value,  463.7  dollars  is  the  true  par  for  100/.  of  our  English 
silver  currency;  but  we  are  comparing  the  dollars  of  America  with 
the  pound  sterling  of  England,  which  is  gold;  therefore,  the  true 
par  for  100/.  sterling  at  the  relative  value  of  dollars  and  gold  in  May 
1809,  the  period  alluded  to,  was  500  dollars.  Now,  for  a  bill  of 
100/.  on  London,  bought  with  dollars  in  America  at  the  highest 
exchange  that  year,  viz.  109,  no  more  was  paid  than  484  dollars; 
it  was  therefore  purchased  at  3 4  per  cent,  under  the  real  par.* 

It  should  be  recollected  that  the  embargo  laws  were  at  that  time 
most  strictly  enforced;  that  captains  of  packets  were  obliged,  before 
they  were  permitted  to  proceed  on  their  voyage,  to  swear  that  thev 
had  no  specie  on  board;  and,  on  one  occasion,  one  of  these  captains 
was  obliged  to  re-land  the  specie  which  he  had  smuggled  on  board 
his  vessel.  At  the  same  time,  the  rate  of  insurance  was  immoder¬ 
ately  high,  and  a  premium  of  8  per  cent,  was  paid  on  a  few  ships 
which  broke  the  embargo,  the  underwriters  being  guaranteed,  too, 
from  the  loss  which  would  have  attended  their  seizure  by  the 
American  Government.  Now,  8  per  cent,  insurance,  besides  com¬ 
mission,  freight,  and  other  expenses,  together  with  3^  per  cent., 
the  actual  discount  of  the  bill  bought,  would,  perhaps,  not  be  much 
under  the  discount  which  then  existed  on  our  paper  currency;  so 
that  our  depreciated  paper  was  not  bought  at  a  premium  for  hard 
dollars,  but  was  bought  at  a  discount,  and  at  its  actual  value. 

But  we  are  told  the  exchange  with  Sweden  is  favourable  to 
England,  and  that  the  currency  of  Sweden  is  regulated  in  a  manner 
precisely  similar  to  ours,  the  Bank  not  issuing  specie  whenever  the 
exchange  becomes  unfavourable.  There  is  no  doubt  a  perfect 
agreement  in  the  two  cases,  and  for  that  reason  they  are  followed 
by  similar  effects,  and  the  depreciation  of  both  currencies  requires 

*  'Hie  weight  of  the  American  dollar  in  circulation  is  not  more,  according  to  Mr 
Williams’s  evidence,  than  17  dwt.  G  gr.,  which  would  make  the  true  par  somewhat 
lower  than  4s.  33d.;  and,  according  to  Ede’s  hook  of  Coins,  the  American  dollar  is  11 
grains  worse  than  standard,  and  contains  no  more  pure  silver  than  4s.  of  English 
standard  silver  coin. 


ON  REPORT  OF  BULLION  COMMITTEE. 


321 


the  same  remedy.  This  remedy  is  a  diminution  in  the  amount  of 
the  circulating  medium,  either  by  the  exportation  of  the  coins,  or 
by  a  reduction  of  bank  paper.  If  the  exchange  with  Sweden  is,  as 
stated,  24  per  cent,  in  favour  of  London,  it  proves  only  that  the 
excess  of  paper  currency  not  convertible  into  specie  is,  in  Sweden, 
proportionably  greater  than  in  England.* 


SECTION  IV. 

A  Statement  concerning  the  Par  of  Exchange,  by  the  Bullion  Committee,  examined. 

Having  now  considered  every  fact,  or  supposed  fact,  advanced 
by  Mr  Bosanquet,  on  the  subject  of  the  exchange,  with  a  view  to 
prove  that  the  principle  which  the  Committee  have  avowed, — 
namely,  that  the  variations  in  the  exchange  with  foreign  countries 
can  never  exceed  for  any  length  of  time  the  expense  of  transport¬ 
ing  and  insuring  the  precious  metals  ;  having  proved  the  conclusion 
to  which  the  writer  would  lead  us  to  be  unsupported  by  his  facts, 
of  which  not  one  is,  as  I  think,  at  variance  with  the  principle  of 
the  Committee,  I  must  beg  leave  to  point  out  an  eri-or  in  the 
Report  itself,  an  error  on  which  Mr  Bosanquet  founds  his  opinion, 
that  all  remedy  may  safely  be  delayed. 

“  Thus,  then,”  says  Mr  Bosanquet,  “  it  appears  that,  on  a  full 
admission  of  all  the  principles  adopted  by  the  Committee,  and  of 
their  application  to  the  present  case,  the  foreign  exchanges  were, 
at  the  time  when  the  Report  was  presented,  and  for  three  months 
prior  thereto,  about  2  per  cent,  below  the  natural  limit  of  depres¬ 
sion.” 

“  It  will  probably  be  thought  that  the  question,  as  a  practical 
question  of  national  importance,  is  altogether  at  rest ; — that  there 
is  no  necessity,  at  least,  for  the  adoption  of  hasty  remedies,  even 
though  the  correctness  of  the  general  reasoning  of  the  Committee 
should,  on  full  inquiry,  be  conceded.” 

When  the  exchange  is  admitted  to  be  exceedingly  depressed,  we 
are  told  that  to  oblige  the  Bank  to  pay  in  specie  would  be  attended 
with  the  most  dangerous  consequences ;  that  we  must  wait  till  the 
exchange  becomes  more  favourable ;  and  when  it  is  supposed  to 
have  risen  within  2  per  cent,  of  its  natural  limit,  then  we  are  again 
desired  to  pause,  because  it  is  no  longer  a  question  of  national 
importance.  By  this  mode  of  reasoning,  a  motive  may  be  found 
lor  refusing  ad  infinitum  to  renew  the  payments  of  the  Bank.  1 

*  Before,  however,  it  can  he  admitted  that  the  exchange  with  Sweden  is  24  pei 
[cent.  in  favour  of  London,  we  must  be  informed  whether  both  gold  and  silver  be  legal 
‘endcr  in  Sweden,  and,  if  so,  at  what  relative  value  those  metals  are  rated  in  the 
Swedish  Mint.  I  suspect  that  a  part  of  this  favourable  exchange  may  be  accounted 
for  by  the  rise  in  the  relative  value  of  gold  to  silver. 


X 


322 


REPLY  TO  MR  BOSANQUET’S  OBSERVATIONS 


confidently  hope  that  no  such  fallacious  reasoning  will  be  listened 
to  ;  that  we  shall  at  last  open  our  eyes  to  the  dangers  that  beset 
us ;  that  we  shall  examine  coolly,  and  decide  manfully. 

The  principle  upon  which  Mr  Mushet’s  amended  tables  are 
constructed,  has  been  most  fully  admitted,  and  most  correctly  and 
concisely  stated  in  the  Report  (page  10.) 

“  If  one  country  uses  gold  for  its  principal  measure  of  value,  and 
another  uses  silver,  the  par  between  those  countries  cannot  be 
estimated  for  any  particular  period,  without  taking  into  account 
the  relative  value  of  gold  and  silver  at  that  particular  period.” 

The  Committee  have,  moreover,  in  their  endeavours  to  find  out 
the  real  par  between  this  country  and  Hamburgh,  kept  this  prin¬ 
ciple  constantly  in  view,  as  will  appear  from  the  questions  put  to 

Mr  -  (Report,  page  73).  Mr  - — —  also  fully  admitted  the 

principle  ;  and  yet,  when  he  was  requested  to  “  state  in  what 
manner  he  applied  those  general  ideas  to  the  statement  of  the  par 
of  exchange,  as  between  England  and  Hamburgh,”  he  answered, 
“  taking  gold  at  the  coinage  price  of  3/.  17s.  10^d.,  and  taking  it 
at  Hamburgh  at  what  we  call  its  par,  which  is  96  stivers  banco  for 
a  ducat,  and  further  reducing  55  ounces  of  standard  gold  as  being 
equal  to  459  ducats,  it  produces  a  par  of  exchange  of  34s.  3^g. 
Flemish  for  a  pound  sterling  :  a  ducat  contains  at  the  rate  of  23^ 
carats  fine.” 

Now,  here  is  not  one  word  said  about  the  relative  value  of  gold 
to  silver  in  the  market ;  and  the  only  information  which  is  obtained 
from  this  answer  is,  that  34s.  3^g.  Flemish,  in  gold  coin,  is  equal 
to  a  pound  sterling  of  gold  ;  and  this  calculation  agrees  within 
-J  grote  with  that  of  Dr  Kelly  ( Rep.  No.  59).  If  the  purchaser  of 
a  bill  in  London  for  34s.  3g.  could  obtain  at  Hamburgh  34s.  3g.  in 
gold  currency,  that  might  truly  be  called  the  par,  but  he  can  only 
obtain  34s.  3g.  in  silver,  which  is  not  worth,  by  8  per  cent.,  as 
much  as  34s.  3g.  in  gold  coin.  The  question  proposed  by  the 
Committee  was,  in  effect,  What  amount  of  Hamburgh  currency 
contains  the  same  quantity  of  pure  silver  as  can  be  purchased  by 
a  pound  sterling  in  gold  ? 

At  the  period  when  the  Report  was  made,  the  answer  would  have 
been  37s.  3g.  Flemish  ;  37s.  3 g.  therefore  was  then  the  true  par  of 
exchange.  If  the  Committee  had  calculated  according  to  this  par, 
instead  of  34s.  3g.,  they  Avould  not  have  reported  that  the  exchange 
with  Hamburgh  was  not  more  unfavourable  to  England  than  9  per 
cent.,  but  nearly  17  per  cent.;  and  Mr  Bosanquet  would  not  have 
had  an  opportunity  for  observing,  that,  admitting  the  reasoning  of 
the  Committee,  the  evil  was  not  of  sufficient  magnitude  to  make 
any  immediate  interference  necessary. 


ON  REPORT  OF  BULLION  COMMITTEE. 


323 


CHAPTER  III. 

MR  BOSANQUET’S  ALLEGED  FACTS,  IN  SUPPOSED  REFUTATION 
OF  THE  CONCLUSION  THAT  A  RISE  IN  THE  MARKET  PRICE  OF 
BULLION  ABOVE  THE  MINT  PRICE  PROVES  A  DEPRECIATION  OF 
THE  CURRENCY,  CONSIDERED. 


SECTION  I. 


That  the  Negation  of  the  above  Conclusion  implies  the  Impossibility  of  melting  or 
exporting  English  Coin — an  Impossibility  contended  for  by  nobody. 


The  next  proposition  of  the  Committee,  the  justness  of  which  Mr 
Bosanquet  disputes,  he  has  thus  stated  : — “  That  the  price  of  gold 
bullion  can  never  exceed  the  Mint  price,  unless  the  currency  in 
which  it  is  paid  is  depreciated  below  the  value  of  gold.”  But  this 
is  not  exactly  the  principle  of  the  Committee.  Their  principle, 
when  fairly  stated,  is,  not  that  gold  as  a  commodity  may  not  rise 
above  its  value  as  coin,  but  that  it  cannot  continue  so,  because  the 
convertibility  of  coin  into  bullion  would  soon  equalize  their  value. 
The  words  of  the  Committee  are  these, — “  Your  Committee  are 
of  opinion  that,  in  the  sound  and  natural  state  of  the  British  cur¬ 
rency,  the  foundation  of  which  is  gold,  no  increased  demand  for 
gold  from  other  parts  of  the  world,  however  great,  or  from  whatever 
causes  arising,  can  have  the  effect  of  producing  here,  for  a  con 
siderable  period  of  time,  a  material  rise  in  the  market  price  of  gold.” 
Nothing  appears  to  me  to  be  wanting  to  make  this  a  self-evident  pro¬ 
position  but  the  admission,  that  the  law,  which  forbids  the  conver¬ 
sion  of  gold  coin  into  gold  bullion,  cannot  be  successfully  executed. 

I  should  have  expected,  therefore,  that  any  one  who  denied  its 
truth  would  have  contended  that  the  law  was  fully  efficient  for  the 
purposes  for  which  it  was  enacted  ;  and  that  he  would  have  brought 
forward  authorities  to  justify  this  view  which  he  had  taken  of  it. 
But  authorities  for  such  an  opinion  would  have  been  difficult  to 
have  been  found.  From  the  days  of  Locke  till  the  present  time  I 
have  nowhere  seen  the  fact  disputed.  It  is  by  all  writers  indis¬ 
criminately  allowed,  that  no  penalties  can  prevent  the  coin  from 


324 


REPLY  TO  MR  BOSANQUET'S  OBSERVATIONS 


being  melted  when  its  value  as  bullion  becomes  superior  to  its  value 
as  coin. 

Locke  calls  the  law  which  forbids  the  melting  and  exporting 
coin,  “  a  law  to  hedge  in  the  cuckoo.”  Smith  observes,  “  that  no 
precautions  of  Government  can  prevent  it.”  On  this  subject,  too, 
vTe  have  the  authority  of  practical  men. 

The  Bank  Directors,  in  the  year  1795,  when  the  price  of  gold 
rose  to  41.  3s.  or  4/.  4s.  per  ounce,  after  acquainting  Mr  Pitt  with 
that  fact,  observe,  “  our  guineas  being  to  be  purchased  at  3/.  17s. 
10^d.  per  ounce,  clearly  demonstrates  the  grounds  of  our  fears; 
it  being  only  necessary  to  state  those  facts  to  the  Chancellor  of  the 
Exchequer.”  Now,  what  were  those  fears,  but  that  there  would 
be  a  run  upon  them  for  gold  coin,  for  the  purpose  of  melting  it  into 
bullion  ?  Mr  Newland,  too,  when  asked  (by  the  Committee  of 
the  Lords,  1797,)  “  If  there  were  now  to  be  a  new  coinage,  do  you 
think  a  great  deal  would  be  melted  down  and  privately  exported?” 
Answered,  “  That  depends  entirely  upon  the  price  of  bullion.” 
In  the  same  Committee  Mr  Newland  was  also  asked,  “  Is  it  more 
difficult  to  prevent  false  coining,  or  to  prevent  the  melting  down 
or  exporting,  when  it  is  for  their  advantage  to  export  it  ?” — Answer, 
“  I  am  at  a  loss  to  guess  how  you  can  prevent  either.” 

These  are  but  a  few  of  the  opinions  which  might  be  brought 
forward  in  support  of  the  fact  of  the  coin  being  melted  into  bullion 
whenever  the  price  of  bullion  rises  above  the  price  of  coin.  I  shall 
conclude,  however,  with  the  opinion  of  Mr  Bosanquet  himself. 
Speaking  of  the  Committee,  he  observes,  “  They  say  nothing  about 
the  price  of  bullion,  which  is  expected,  doubtless,  to  return  when 
the  Bank  shall  have  sufficiently  controlled  the  exchange;  although 
Mr  Locke  and  many  other  writers  have  clearly  demonstrated  that 
the  coins  of  any  country  can  only  be  retained  within  it  when  the 
general  balance  of  trade  and  payments  is  not  unfavourable.”  Now, 
under  the  circumstances  supposed  of  a  1owt  exchange,  what  should 
take  our  coins  from  us  but  their  superior  value  as  bullion  ?  Who 
would  export  coins  if  bullion  could  be  bought  at  its  Mint  price  ? 
It  is  their  superior  value  as  bullion,  therefore,  that  is  the  cause  of 
their  being  melted  and  expoi’ted. 

But  the  Committee  have  not  been  satisfied  with  simply  stating 
a  position  which  is  almost  self-evident ;  they  have  appealed  to  facts, 
and  distinctly  assert,  that  for  a  period  of  twenty-four  years, 
since  the  recoinage,  gold  bullion  in  standard  bars  had  not  been 
at  a  higher  price  than  31.  17s.  lO^d.  per  ounce,  with  the  exception 
of  one  year,  beginning  in  May  1783,  and  ending  in  May  1784,  when 
the  price  was  3/.  18s.  per  ounce.  We  are  indeed  informed  by  a 
letter  from  the  Bank  Directors  to  Mr  Pitt,  in  October  1795,  and 
it  is  on  that  authority  reported  by  the  Committee,  that  gold  bullion 
was  then  as  high  as  41.  3s.  or  41.  4s.  per  ounce ;  and  it  was  stated 
by  Mr  Newland  to  the  Lords’  Committee  in  1797,  that  the  Bank 
had  been  frequently  obliged  to  buy  gold  higher  than  the  Mint 


ON  REPORT  OF  BULLION  COMMITTEE. 


325 


price ;  and  upon  one  occasion  gave  as  much,  for  a  small  quantity 
which  their  agent  procured  in  Portugal,  as  -P.  8s.* 

These  are  the  only  facts  on  which  .Mr  Bosanquet  relies  for  over¬ 
turning  the  principle  in  question.  Prices  not  known  to  the  public ; 
not  recorded  in  any  list ;  given,  too,  by  a  corporation  not  remark¬ 
able  for  the  good  management  of  their  concerns,  are  to  be  deemed 
the  fair  market  price ;  and  such  exceptions  as  these  are  to  overturn 
opinions  grounded  on  a  just  theory,  sanctioned  by  practical  men, 
and  confirmed  by  experience. 

Is  there  any  evidence  that  these  prices  continued  even  for  a  week  ? 
If  we  consult  the  price  list,  we  shall  find,  that  in  July  of  that  year, 
1795,  the  price  of  gold  is  quoted  3/.  17s.  fid. ;  in  December  it  is 
again  quoted  3 1.  17s.  fid.,  and  in  the  intervening  four  months  no 
price  is  marked.  Does  Mr  Bosanquet  think  it  possible  that  such  a 
price  as  4/.  4s.  for  gold  could  have  continued,  whilst  it  was  to  be 
obtained,  by  melting  the  coin,  at  3^.  17s.  KHd.  ?  Has  he  so  good 
an  opinion  of  the  self-denial  and  virtues  of  all  classes  of  the  com¬ 
munity  ?  If  he  has,  why  are  they  not  now  to  be  trusted  ?  What 
is  the  plea  urged  for  not  paying  in  specie?  That  at  the  present 
exchange,  and  present  price  of  gold,  it  would  be  advantageous  to 
export  and  melt  the  coin,  so  that  there  would  be  danger  that  every 
guinea  would  leave  the  country.  But  when  you  tell  us  that  bullion 
has  no  connexion  with  coin,  “  that  there  is  no  point  of  contact 
between  English  and  foreign  gold,”  there  can  be  no  danger  of  any 
one’s  being  particularly  desirous  to  possess  coin,  as,  for  the  mere  pur¬ 
poses  of  circulation,  bank  notes  are  equally,  if  not  more  convenient. 

“  If”  says  Mr  Bosanquet,  “  the  demand  for  foreign  gold  was  at 
any  time  very  great,  and  the  melting  and  exportation  of  guineas, 
however  abundant,  by  any  means  effectually  prevented,  foreign  gold 
might  rise  to  double  its  price  in  English  gold,  and  yet  the  intrinsic 
value  of  guineas  remain  undiminished.” 

t  o 

I  might  apply  to  this  if  of  Mr  Bosanquet  the  observation  which 

*  It  appears  that  it  was  in  1795,  and  most  probably  in  October,  that  the  Bank  gave 
4/.  8s.  for  gold,  as  stated  by  Mr  Newland.  On  being  asked  concerning  the  time 
bv  the  Lords’  Committee,  he  answered,  “  I  believe  it  was  about  two  years  since  the 
Bank  gave  about  4/.  8s.  per  ounce  for  gold  ;  it  was  but  a  small  quantity,  it  was  soon 
stopt  on  account  of  its  price.  The  Bank  at  that  time  thought  it  expedient  to  obtain 
gold  from  Portugal,  which  their  agent  could  not  do  at  a  less  price  than  4/.  8s.” 

Mr  Newland  was  speaking  on  the  28th  March  1797. 

It  is  a  case  by  no  means  improbable  that  the  Bank  may  frequently  have  bought 
foreign  gold  above  the  Mint  price,  at  the  same  time  that  they  could  have  obtained 
gold  in  bars,  not  exportable,  at  a  comparatively  cheaper  price.  They  might  flatter 
themselves  that,  by  not  purchasing  English  gold,  they  would  lessen  the  temptation 
to  melt  the  guineas :  at  the  same  time  their  diminished  stock  required  them  to 
replenish  their  coffers.  This  opinion  is  very  much  confirmed  by  an  examination  of 
the  account  in  the  Appendix  of  the  Bullion  Report,  No.  19,  where  it  appears,  that 
from  1797  to  1810,  the  amount  in  value  of  gold  coined  at  his  Majesty’s  Mint  was 
8.960,113/.,  of  which  only  2,296.056/.  was  coined  from  English  gold,  the  remainder 
was  coined  from  foreign  gold.  It  appears,  too,  that  since  1804,  1,402,542/.  has  been 
coined  from  foreign  gold,  and  not  one  guinea  from  British  gold  During  the  whole  of 
this  period  the  price  of  foreign  gold  in  the  market  exceeded  the  price  of  English 
gold.  Is  it  not  probable,  therefore,  that  the  Bank,  who  are  the  only  importers  of  gold 
into  the  Mint,  have  been  guided  by  some  such  policy  as  I  have  supposed. 


32G  REPLY  TO  MR  BOSANQUET’S  OBSERVATIONS 

he  has  made  on  the  same  word,  when  used  by  the  Committee,  your, 
if,  is,  a  great  peace-maker.  But  the  above  is  not  our  case ;  the  law 
cannot  be  effectually  enforced.  The  remark,  therefore,  is  of  no  use 
in  the  question  before  us. 

If  the  law,  however,  could  be  effectually  enforced,  it  would  be 
attended  with  the  most  cruel  injustice.  Why  should  not  the  holder 
of  an  ounce  of  gold  in  coin  have  the  same  advantages  from  the 
increase  in  the  value  of  his  property,  as  the  holder  of  an  ounce  of 
uncoined  gold?  From  the  mere  circumstance  of  its  having  had  a 
stamp  put  on  it,  is  he  to  be  made  to  suffer  all  the  inconveniences 
from  the  fall  in  the  value  of  his  gold,  in  consequence  of  the  opening 
of  new  mines,  or  p’om  any  other  circumstances,  and  derive  none  of 
the  benefits  which  may  result  from  a  rise  in  its  value  ?  This  in¬ 
justice  to  individuals  would  not  be  compensated  by  the  slightest 
advantages  to  the  community ;  as  the  exportation  of  the  coin,  were 
it  freely  permitted,  would  always  cease  when  the  value  of  our  cur¬ 
rency  had  risen  to  its  true  bullion  value,  and  that  is  precisely  the 
value  at  which  the  currencies  of  all  countries  are  permanently  fixed. 

Such,  in  spite  of  the  law,  was  the  value  of  our  currency  till  the 
Bank  restriction  bill,  and  for  some  time  after.  There  it  would 
inevitably  fix  itself  again,  if  that  most  impolitic  act  "were  repealed. 
Increase  the  value  of  your  currency  to  its  proper  level,  and  you  are 
sure  to  retain  it.  No  policy  can  be  worse  than  forcibly  detaining 
a  million,  for  example,  to  perform  those  offices  to  which  800,000/. 
are  fully  adequate. 


SECTION  II. 


Consequences  which  would  follow  on  the  Supposition  that  the  Currencies  of  othei 
Countries  (exclusive  of  England)  were  diminished  or  increased  one  half. 


Let  us  suppose  that  the  circulation  of  all  countries  were  carried  on 
by  the  precious  metals  only,  and  that  the  proportion  which  England 
possessed  were  one  million ;  let  us  further  suppose,  that,  at  once, 
half  of  the  currencies  of  all  countries,  excepting  that  of  England, 
were  suddenly  annihilated,  would  it  be  possible  for  England  to 
continue  to  retain  the  million  which  she  before  possessed  ?  Would 
not  her  cui'rency  become  relatively  excessive  compared  with  that  of 
other  countries  ?  If  a  quarter  of  wheat,  for  example,  had  been  both 
in  France  and  England  of  the  same  value  as  an  ounce  of  coined 
gold,  would  not  half  an  ounce  now  purchase  it  in  France,  vfoilst  in 
England  it  continued  of  the  same  value  as  one  ounce?*  Could  we 

*  That  commodities  would  rise  or  fall  in  price,  in  proportion  to  the  increase  or 
diminution  of  money,  I  assume  as  a  fact  which  is  incontrovertible.  Mr  Bosanquet,  in 
his  admission  of  the  effects  on  prices  from  the  discovery  of  a  mine,  shows  that  he  has 
no  such  doubts  on  this  subject  as  the  governor  of  the  Bank,  who,  when  asked  by  the 
Committee,  “  Do  you  conceive  that  a  very  considerable  reduction  of  the  amount  of 
the  circulating  medium  would  not  tend  in  any  degree  to  increase  its  relative  value 


ON  REPORT  OF  BULLION  COMMITTEE. 


327 


by  any  laws,  under  such  circumstances,  prevent  wheat  or  some  other 
commodity  (for  all  would  be  equally  affected)  from  being  imported 
into  England,  and  gold  coin  from  being  exported?  If  we  could, 
and  the  exportation  of  bullion  were  free,  gold  might  rise  100  per 
cent. ;  o,nd  for  the  same  reason,  if  35  Flemish  schillings  in  Ham¬ 
burgh  had  before  been  of  equal  value  with  a  pound  sterling,  17^ 
schillings  would  now  attain  that  value.  If  the  currency  of  England 
only  had  been  doubled,  the  effects  would  have  been  precisely  the 
same. 

Suppose,  again,  the  case  reversed,  and  that  all  other  currencies 
remained  as  before,  while  half  of  that  of  England  was  retrenched. 
If  the  coinage  of  money  at  the  Mint  was  on  the  present  footing, 
would  not  the  prices  of  commodities  be  so  reduced  here  that  their 
cheapness  would  invite  foreign  purchasers,  and  would  not  this 
continue  till  the  relative  proportions  in  the  different  currencies 
were  restored  ? 

If  such  would  be  the  effects  of  a  diminution  of  money  below  its 
natural  level,  and  that  such  would  be  the  consequences  the  most 
celebrated  writers  on  political  economy  are  agreed,  how  can  it  be 
justly  contended  that  the  increase  or  diminution  of  money  has 
nothing  to  do  either  with  the  foreign  exchanges,  or  with  the  price 
of  bullion  ? 

Now,  a  paper  circulation,  not  convertible  into  specie,  differs  in 
its  effects  in  no  respect  from  a  metallic  currency,  with  the  law 
against  exportation  strictly  executed. 

Supposing,  then,  the  first  case  to  occur  whilst  our  circulation 
consisted  wholly  of  paper,  would  not  the  exchanges  fall,  and  the 
price  of  bullion  rise  in  the  manner  which  I  have  been  representing ; 
and  would  not  our  currency  be  depreciated,  because  it  was  no 
longer  of  the  same  value  in  the  markets  of  the  world  as  the  bullion 
which  it  professed  to  represent  ?  The  fact  of  depreciation  could 
not  be  denied,  however  the  Bank  Directors  might  assure  the  public 
that  they  never  discounted  but  good  bills  for  bona  fide  transactions  ; 
however  they  might  assert  that  they  never  forced  a  note  into 
circulation  ;  that  the  quantity  of  money  was  no  more  than  it  had 
always  been,  and  was  only  adequate  to  the  wants  of  commerce, 
which  had  increased  and  not  diminished  ;*  that  the  price  of  gold, 

compared  with  commodities,  and  that  a  considerable  increase  of  it  would  have  no 
tendency  whatever  to  augment  the  price  of  commodities  in  exchange  for  such  circu¬ 
lating  medium  ?  ” — Answered,  “  It  is  a  subject  on  which  such  a  variety  of  opinions  are 
entertained,  I  do  not  feel  myself  competent  to  give  a  decided  answer.” 

*  The  Bank  could  not  on  their  own  principles,  then,  urge  that  most  erroneous 
opinion,  that  the  rate  of  interest  would  be  affected  in  the  money  market  if  their  issues 
were  excessive,  and  would  therefore  cause  their  notes  to  return  to  them,  because,  in 
the  case  here  supposed,  the  actual  amount  of  the  money  of  the  world  being  greatly 
diminished,  they  must  contend  that  the  rate  of  interest  would  generally  rise,  and  they 
might  therefore  increase  their  issues.  If,  after  the  able  exposition  of  Dr  Smith,  any 
further  argument  were  necessary  to  prove  that  the  rate  of  interest  is  governed  wholly 
by  the  relation  of  the  amount  of  capital  with  the  means  of  employing  it,  and  is  en¬ 
tirely  independent  of  the  abundance  or  scarcity  of  the  circulating  medium,  this 
illustration  would,  I  think,  afford  it. 


328  REPLY  TO  MR  BOSANQUET'S  OBSERVATIONS 

which  was  here  at  twice  its  Mint  value,  was  equally  high,  or  higher 
abroad,  as  might  be  proved  by  sending  an  ounce  of  bullion  tc 
Hamburgh,  and  having  the  produce  remitted  by  bill  payable  in 
London  in  bank  notes  ;  and  that  the  increase  or  diminution  of  their 
notes  could  not  possibly  either  affect  the  exchange  or  the  price  of 
bullion.  All  this,  except  the  last,  might  be  true,  and  yet  would 
any  man  refuse  his  assent  to  the  Let  of  the  currency  being  depre¬ 
ciated  ?  Could  the  symptoms  which  I  have  been  enumerating 
proceed  from  any  other  cause  but  a  relative  excess  in  our  currency  ? 
Could  our  currency  be  restored  to  its  bullion  value  by  any  other 
means  than  by  a  reduction  in  its  quantity,  which  should  raise  it  to 
the  value  of  the  currencies  of  other  countries  ;  or  by  the  increase 
of  the  precious  metals,  which  lower  the  value  of  theirs  to  the  level 
of  ours  ? 

Why  will  not  the  Bank  try  the  experiment  by  a  reduction  in  the 
amount  of  their  notes  of  two  or  three  millions  for  the  short  period 
of  three  months?  If  no  effects  were  produced  on  the  price  of 
bullion  and  the  foreign  exchange,  then  might  their  friends  boast 
that  the  principles  of  the  Bullion  Committee  were  the  wild  dreams 
of  speculative  theorists. 


SECTION  III. 

The  trifling  Rise  in  the  Price  of  Gold  on  the  Continent  owing  solely  to  a  Variation 
in  the  Relation  of  Silver  to  Gold. 

But  the  price  of  gold,  we  are  told,  has  risen  on  the  Continent 
even  more  than  it  has  here,  because,  when  it  was  4 l. 12s.  in  this 
country,  41. 17s.  might  be  procured  for  it  at  Hamburgh,  a  difference 
of  5^  per  cent.  This  is  so  often  repeated,  and  is  so  wholly  falla¬ 
cious,  that  it  may.  be  proper  to  give  it  particular  consideration. 

When  an  ounce  of  gold  was  to  be  bought  in  this  country  at 
3 l. 17s.  l(Hd.,  and  the  relative  value  of  gold  was  to  silver  as  15.07 
to  1,  it  would  have  sold  on  the  Continent  for  nearly  the  same  as 
here,  or  3 l.  17s.  104d.  in  silver  coin.  In  Hamburgh,  for  example, 
we  should  have  received  in  payment  of  an  ounce  of  gold  13(5 
Flemish  schillings  and  7  grotes,  that  quantity  of  silver  containing 
an  equal  quantity  of  pure  metal  as  3f.  17s.  l(Hd.  in  our  standard 
silver  coin. 

Gold  has  since  that  period  risen  in  this  country  18  per  cent., 
and  is  now  at  41. 12s.  per  ounce,  and  it  is  said  that  the  41.  12s.  with 
which  it  is  paid  for  is  not  depreciated.  Now,  as  gold  has  risen  5| 
moi'e  abroad  than  it  has  here,  it  must  be  there  234  per  cent,  higher 
than  when  it  was  sold  for  136s.  7g.,  and  we  therefore  should  be  led 
to  expect  that  we  should  now  obtain  for  it  at  Hamburgh  167 
Flemish  schillings;  but  what  is  the  fact?  this  ounce  of  gold,  which 


ON  REPORT  OF  BULLION  COMMITTEE. 


329 


we  are  told  we  sell  at  Hamburgh  for  4 1. 17s.,  actually  produces  no 
more  than  140  schillings  8  grotes,  an  advance  only  of  3  per  cent. ; 
and  for  this  the  seller  is  indebted  to  the  rise  in  the  relative  value  of 
gold  to  silver,  which,  from  15.07  to  1,  is  now  about  16  to  1.  It 
is  true  that,  when  the  ounce  of  gold  was  sold  at  Hamburgh  at 
3?.  17s.  10|d.,  or  for  its  equivalent  136  schillings  7  grotes,  the 
currency  of  England  was  not  depreciated  ;  that  sum,  therefore, 
could  only  purchase  a  bill  payable  in  London  in  bank  notes  for 
61. 17s.  UHd. ;  but  the  currency  of  England  being  now  depreciated, 
and  being  estimated  on  the  Hamburgh  exchange  at  28  or  29  Flemish 
schillings  instead  of  37,  the  true  value  of  a  pound  sterling,  140 
schillings  8  grotes,  or  3  per  cent,  more  than  136s.  7g.,  will  now 
purchase  a  bill  payable  in  London  in  bank  notes  for  4/.  17s. ;  so 
that  gold  has  not  risen  more  than  3  per  cent,  in  Hamburgh,  but  the 
icurrency  of  England,  on  a  comparison  with  the  currency  of  Ham¬ 
burgh,  has  fallen  23^  per  cent.  , 

In  further  proof  of  the  truth  of  my  assertion,  that  it  is  not  gold 
which  has  risen  16  or  18  per  cent,  in  the  general  market  of  the 
world,  but  that  it  is  the  paper  currency,  in  which  the  price  of  gold 
is  estimated  in  England,  which  alone  has  fallen,  I  will  subjoin  an 
account  of  the  lowest  prices  of  gold  in  Hamburgh,  Holland,  and 
England,  in  the  year  1804,  and  the  highest  prices  in  each  of  those 
countries  in  the  year  1810,  by  which  we  shall  be  enabled  to  ascer¬ 
tain  the  actual  rise  in  the  price  of  gold  measured  in  the  currencies 
of  each.  This  account  was  furnished  to  the  Bullion  Committee  by 
Mr  Grefulhe,  and  is  numbered  56. 


Lowest  Price. 
Hamburgh  1804 — 97§ 
Holland  1804— 392J 

England  1804 — 4/. 


Highest  Price. 

1810 — 101  being  a  rise  of  3$  per  cent. 
1810 — 40GTV  "  3| 

1810—4/.  13s.  16 


Now,  in  Hamburgh  and  in  Holland,  where  the  currency  is  silver, 
gold  may  not  rise  3  per  cent,  only,  but  30  per  cent.,  without  its 
being  any  proof  of  the  depreciation  of  the  currency  ;  it  proves  only 
an  improvement  in  the  relative  value  of  gold  to  silver.  But  in 
England,  where  the  price  of  gold  is  estimated  in  gold  coin,  or  in 
bank  no.tes  representing  that  coin,  a  rise  of  1  per  cent,  cannot  take 
place  without  its  proving  a  corresponding  depression *  of  the  coin  or 
paper.  This  observation  is  equally  applicable  to  the  fact  mentioned 
by  Mr  Bosanquet,  and  of  which  he  himself  seems  aware,  of  gold 
having  varied  in  Hamburgh  no  less  than  8  per  cent,  within  a  period 
of  two  years. 

As  there  is  an  acknowledged  difference  between  the  price  of 
standard  gold  bars  and  the  price  of  gold  coin  reduced  to  the  English 
standard,  arising  out  of  the  latter  being  a  more  marketable  commo- 


*  This  expression  lias  been  noticed  by  Mr  Bosanquet  as  extremely  theoretical,  but 
I  consider  it  so  exceedingly  correct  that  I  have  lalteu  the  liberty  of  using  it  after  the 
Committee. 


330 


REPLY  TO  MR  BOSANQiJET’S  OBSERVATIONS 


dity  on  the  Continent,*  I  cannot  admit  the  inferences  which  Mi 
Bosanquet  draws  from  the  comparison  of  Mr  Grefulhe’s  paper 
(No.  58)  with  the  paper,  No.  60,  in  the  Report.  It  would  be  first 
necessary  to  ascertain  whether  the  prices  of  gold,  as  quoted  in  these 
papers  (and  they  do  not  quite  agree),  were  for  gold  in  coin,  or  for 
gold  of  any  other  description  ;  and  whether  the  prices  of  gold  in 
this  country  at  different  periods  were  always  for  gold  of  the  same 
quality. 

Mr  Bosanquet  observes  that,  “From  the  calculation  furnished 
by  Mr  Grefulhe  to  the  Committee,  it  appears  that,  in  the  spring  of 
1810,  an  ounce  of  gold  of  English  standard  weight  was  worth  at 
Hamburgh  4(.  17s.  sterling, — the  price  being  101,  and  the  exchange 
29s.”  The  reader  must  recollect  that  it  is  41.  17s.  in  bank  notes 
that  is  here  meant,  as  I  have  already  explained.  But  I  cannot 
admit  the  perfect  accuracy  of  this  statement.  The  exporter  of  an 
ounce  of  gold,  purchased  here  at  41.  12s.,  would  at  least  have  had 
to  wait  three  months  before  he  could  have  received  the  41. 17s., 
because,  after  the  gold  is  sold  at  Hamburgh,  the  remittance  is 
made  by  a  bill  at  2|  usances,  so  that,  allowing  for  interest  for  this 
period,  he  would  actually  have  obtained  a  profit  of  per  cent, 
only  ;  but,  as  the  expense  of  sending  gold  to  Hamburgh  is  stated 
in  evidence  to  be  7  per  cent.,  a  bill  would  at  this  time  have  been  a 
cheaper  remittance  by  2f  per  cent. 

Now,  allowing  that  Mr  Bosanquet  is  perfectly  accmate  in  his 
statement,  that  the  price  of  gold  was  in  this  country  at  41. 12s. 
during  the  months  of  June,  July,  August,  and  September  1809,  as 
well  as  in  the  spring  of  1810,  and  that  in  all  these  instances  such 
price  was  given  for  gold  of  the  same  quality,  his  conclusion  that  in 
those  months  in  the  year  1809  a  profit  of  5i  per  cent,  could  be  made 
by  the  exportation  of  gold,  over  and  above  the  expenses,  is  not 
warranted  by  the  fact.  “  If,  at  101  and  29,”  observes  Mr  Bosanquet, 
“  there  was  a  profit  on  the  export  of  gold  from  hence  to  Hamburgh 
of  5£  per  cent.,  it  follows  that  at  104-^  (the  prices  in  Hamburgh 
June,  July,  August,  and  September  1809),  and  28s.,  there  was  a 
profit  of  124  per  cent.;  or,  deducting  the  expenses  of  conveyance, 
that  gold,  if  bought  here  at  41. 12s.  per  ounce,  was  a  cheaper 
remittance  by  5|  per  cent,  than  a  bill  at  the  current  exchange.” 
As  I  have  already  shown  that  when  the  exchange  was  29,  and  the 
price  of  gold  in  Hamburgh  101,  gold  was  a  dearer  remittance  than 
by  bill  by  2f  per  cent.,  it  follows  that  at  28s.  and  104-g,  it  was  only 
cheaper  by  4£  per  cent. 

These  facts  prove  that  in  June,  July,  August  and  September 
1809,  whilst  the  exchange  was  at  Hamburgh  28s.  and  gold  1044, 
the  real  exchange  was  in  favour  of  Hamburgh  ;  whilst,  in  the  spring 
of  1810,  it  was  so  much  less  favourable  that  it  would  not  cover  the 
expenses  attending  the  importation  of  gold. 


*  See  Iasi  note,  page  316. 


ON  REPORT  OF  BULLION  COMMITTEE. 


331 


As  for  the  rise  of  gold  in  Hamburgh  with  an  invariable  exchange, 
it  is  what  would  have  been  naturally  expected  if  there  had  been  a 
corresponding  rise  in  the  price  of  gold  here.  In  proportion  as  the 
English  currency  becomes  depreciated  as  compared  with  gold,  will 
it  become  worth  fewer  of  the  schillings  of  Hamburgh,  unless  a  rise 
in  the  value  of  gold  at  Hamburgh  should  counteract  the  deprecia¬ 
tion,  by  making  a  gold  pound  sterling  more  valuable. 

The  exchanges,  again,  would  partake  in  all  the  variations  in  the 
value  of  a  depreciated  pound  sterling,  whilst  the  price  of  gold  con¬ 
tinued  invariable  at  Hamburgh. 

“It  appears,”  says  Mr  Bosanquet,  “  by  the  return  from  the  Bullion 
office  at  the  Bank,  No.  7  and  8  in  the  Appendix  to  the  Report, 
that  the  total  amount  of  gold  bullion  imported  and  deposited  in  the 
Bullion-office  in  1809  amounted  in  value  to  only  L. 520, 225 

That  during  the  same  period,  the  quantity  of  gold 
delivered  out  of  the  Bullion-office  amounted  in  value  to  L. 805, 568 
of  which  only  592Z.  was  not  exportable. 

“  The  amount  of  the  importation  is  therefore  such  as,  when 
compared  with  the  amount  of  exports  and  imports,  and  that  of 
the  circulating  medium,  to  justify  the  assumption  of  comparative 
scarcity ;  and  the  excess  of  delivery  beyond  the  importation  is 
sufficient  evidence  of  unusual  demand.” 

The  fact  itself  here  insisted  on  would  be  of  little  importance  in 
the  question  which  we  are  now  discussing ;  but  it  appears  to  me 
that  Mr  Bosanquet  is  not  warranted  in  his  conclusions  by  the 
statements  in  the  accounts  to  which  he  refers. 

The  excess  of  delivery  beyond  the  importation  is  not  any  evidence 
of  unusual  demand,  as  it  is  accounted  for  by  the  following  note  to 
No.  7,  from  which  the  larger  sum  is  extracted. 

“  Note. — The  above  is  the  amount  of  gold  which  has  passed 
the  Bullion-office  in  the  time  above  named,  as  sales  and  pur¬ 
chases  by  private  dealers,  but  which  may  have  passed  more  than 
once  the  Bullion-office,  having  no  information  generally  from 
whence  the  seller  procures  his  gold.” 

The  importations  stated  in  No.  8  are  actually  deposited  by 
importers  from  abroad,  and  can  only  be  received  once.  Besides 
this  objection,  these  accounts  were  not  fair  subjects  of  comparison, 
No.  7  being  made  up  to  the  18th  April  1810,  No.  8  to  30th  March 
1810. 

“  The  point  of  view  in  which  these  facts  are  important,”  continues 
Mr  Bosanquet,  “  is  that  which  places  the  amount  of  gold  imported 
or  delivered  in  line  of  comparison  with  the  amount  of  paper  cur¬ 
rency,  supposed  to  be  depreciated  on  the  evidence  of  the  increased 
price  of  bullion.  The  advance  of  12s  per  ounce  on  the  total  quantity 
of  gold  delivered  in  one  year — about  200,000  ounces — amounts  to 
120,000/.  or  130,000/.,  and  this  is  assumed  as  an  unequivocal 
symptom  of  a  depreciation  of  12  or  13  per  cent,  on  30  or  40  millions 
of  paper,  the  probable  amount  of  our  paper  currency.”  “  We  may 


332 


REPLY  TO  MR  BOSANQUET'S  OBSERVATIONS 


soon  expect  to  be  told  that  the  value  of  bank  notes  has  increased, 
because  the  paper  on  which  they  are  made  is  somewhat  dearer  than 
heretofore.” 

The  value  of  a  bank  note  is  ascertained,  not  by  the  number  of 
transactions  which  may  take  place  in  the  purchase  or  sale  of  gold, 
but  by  the  actual  comparative  value  of  the  note  with  the  value  of 
the  coin  for  which  it  professes  to  be  a  substitute. 

As  it  is  allowed  that  a  Government  bank  might  force  a  circu¬ 
lation  of  paper,  although  our  Bank  cannot,  how  would  Mr  Bosanquet 
calculate  the  depreciation  of  such  forced  notes  but  by  a  comparison 
of  their  value  with  the  value  of  bullion?  Would  he  think  it  neces¬ 
sary  to  inquire  whether  100  ounces  only  had  been  the  amount 
transacted  in  the  year,  or  whether  it  had  been  a  million  ?  If  gold 
be  not  a  test  by  which  to  estimate  depreciation,  what  is?  Whilst 
it  is  a  criminal  offence  to  buy  guineas  at  a  premium,  it  does  not 
seem  probable  that  we  can  possess  the  only  test  which  would  satisfy 
these  gentlemen,  namely,  two  prices  for  commodities,  a  price  in 
guineas,  and  another  in  bank  notes.  They  might,  even  in  that 
case,  contend,  that  it  was  the  scarcity  of  gold  abroad  which  had 
raised  the  value  of  the  guinea. 


SECTION  IV. 

Failure  ascribed  to  Mr  Locke’s  Theory  relative  to  the  Recomage  in  1696. 


It  is  correctly"  stated  byr  Mr  Bosanquet,  that  Mr  Locke’s  theory 
was  similar  to  that  now  held.  He  did  most  certainly  maintain  that 
an  ounce  of  silver  in  coin  could  not  be  less  valuable  than  an  ounce 
of  silver  bullion  of  the  same  standard.  And  the  Committee  now 
maintain,  that  in  the  sound  state  of  the  British  currency  an  ounce 
of  gold  bullion  cannot,  for  any  length  of  time,  be  of  more  value  than 
3 1.  17s.  llfod.,  or  an  ounce  of  gold  coin  :  but  neither  of  these 
opinions  have  been  yet  found  incorrect.  The  effects  expected  from 
the  re-coinage  in  King  William’s  reign  foiled  of  being  realized,  not 
because  Mr  Locke’s  theory  was  followred,  but  because  it  was  not 
followed.  It  did  not  foil  because  he  could  not  be  convinced  that 
“  the  value  of  silver  bullion  was  become  greater  than  the  standard 
or  Mint  price”  (that  being  impossible  if  estimated  in  silver  coin), 
but  because  his  suggestions  were  not  adopted. 

It  was  proposed  by  Mr  Locke  that  silver  coin  should  be  the  only 
fixed  legal  standard  of  currency",  and  that  guineas  should  pass 
current  in  all  payments  at  their  bullion  value.  Under  such  a 
system,  a  guinea  would  have  partaken  of  all  the  variations  in  the 
relative  value  of  gold  and  silver ;  it  might  at  one  time  have  been 
worth  20s.,  and  at  another  25s. :  but,  contrary  to  Mr  Locke’s 
principle,  the  value  of  the  guinea  was  first  fixed  at  22 s ,  and 


ON  REPORT  OF  BULLION  COMMITTEE. 


333 


afterwards  at,  21s.  Gd.,  whilst  its  value  as  bullion  was  consi¬ 
derably  below  it.*  At  the  same  time  the  silver  coin,  for  the 
very  reason  that  gold  was  rated  too  high,  passed  in  currency  at 
a  value  less  than  its  bullion  value.  It  was  to  be  expected,  there¬ 
fore,  that  the  gold  coin  would  be  retained,  and  that  the  silver  coin 
would  disappear  from  circulation.  If  the  value  of  the  guinea  in 
currency  had  been  lowered  to  its  true  market  value  in  silver,  the 
exportation  of  the  silver  coin  would  immediately  have  ceased,  and, 
in  fact,  this  was  the  remedy  which  was  at  last  adopted.  The  matter 
being  referred  to  Sir  I.  Newton  in  1717,  then  master  of  the  Mint, 
he  reported,  “  the  principal  cause  of  the  exportation  of  the  silver 
coin  was,  that  a  guinea,  which  then  passed  for  21s.  Gd.,  was  gene¬ 
rally  worth  no  more  than  20s.  8d.,  according  to  the  relative  value 
of  gold  to  silver  at  the  market,  though  its  value  occasionally  varied.” 
“  He  then  suggested,  that  Gd.  should  be  taken  off  from  the  value  of 
the  guinea  in  order  to  diminish  the  temptation  to  export  and  melt 
down  the  silver  coin,  acknowledging,  however,  that  lOd.  or  12d. 
ought  to  be  taken  from  the  guinea,  in  order  that  gold  might  bear 
the  same  proportion  with  silver  money  in  England  which  it  ought 
to  do  by  the  course  of  trade  and  exchange  in  Europe.”!  The  same 
effects  would  have  followed  without  the  intervention  of  Government, 
if  the  relative  value  of  gold  and  silver  in  the  market  had  so  varied 
as  to  have  made  them  agree  with  the  Mint  proportions. 

Lord  Liverpool,  in  speaking  of  the  re-coinage  in  ]  696,  is  of  a 
very  different  opinion  from  Mr  Bosanquet ; — so  far  from  considering 
that  measure  as  having  “  subjected  the  nation  to  disappointment 
and  inconvenience,  under  which  we  still  labour,  and  to  an  unpro¬ 
fitable  expense  of  nearly  3  millions  sterling,”  he  observes,  “  that 
great  as  this  charge  was,  the  losses  which  the  Government  as  well 
as  the  people  of  this  kingdom  continued  daily  to  suffer  till  the 
re-coinage  was  completed,  justified  almost  any  expense  which  might 
be  incurred  for  their  relief.” 

Mr  Bosanquet  is  not  quite  correct  in  saying,  page  34,  that  the 
price  of  silver  has  never  been  under  the  Mint  price  since  the  re¬ 
coinage  in  the  reign  of  King  William.  On  a  reference  to  Mr 
Mushet’s  tables,  it  appears  that  it  was  as  low  as  5s.  Id.  in  1793  and 
1794,  and  in  1798  it  fell  to  5s.,  which  was  the  occasion  of  the  law 
for  prohibiting  the  coinage  of  silver  which  I  have  already  noticed.! 

*  It  may  be  «aid,  that,  although  guineas  were  by  law  prohibited  from  passing  at 
more  than  21s.  6d.,  they  were  not  declared  a  legal  tender  till  1717  ;  and,  therefore, 
that  no  creditor  was  obliged  to  accept  of  them  in  discharge  of  a  debt  at  that  rate.  But 
if  Government  received  them  in  the  payment  of  taxes  at  such  value,  the  effects  would 
be  nearly  the  same  as  if  they  had  by  act  of  Parliament  been  made  a  legal  tender. 

t  Lord  Liverpool’s  letter  to  the  King. 

t  Since  this  was  sent  to  the  press  I  have  seen  the  second  edition  of  Mr  Bosan.j net’s 
work,  in  which  this  inaccuracy  is  corrected. 


334 


REPLY  TO  MR  BOSANQUET’S  OBSERVATIONS 


CHAPTER  IV. 


MU  bosanquet’s  objections  to  the  statement,  that  the 

BALANCE  OF  PAYMENTS  HAS  BEEN  IN  FAVOUR  OF  GREAT 

BRITAIN,  EXAMINED. 

Having  considered  all  those  points  deemed  so  important  by  Mr 
Bosanquet  in  contradiction  of  the  opinion  of  the  Committee,  “  that 
it  is  by  a  comparison  of  the  market  and  Mint  value  of  bullion,  that 
the  fact  of  the  depreciation  of  the  currency  can  be  estimated and 
having,  I  trust,  made  it  evident  that  there  is  no  other  test  singly, 
by  which  we  are  enabled  to  judge  of  the  sound  or  unsound  state  of 
our  paper  currency,  I  shall  proceed  to  the  consideration  of  the  next 
disputed  position  of  the  Bullion  Committee  ;  namely,  “  That  so  far 
as  any  inference  is  to  be  drawn  from  Custom-house  returns  of 
exports  and  imports,  the  state  of  the  exchanges  ought  to  be 
peculiarly  favourable.” 

Mr  Bosanquet  has  been  at  the  trouble  of  consulting  numerous 
documents  to  prove  that  the  Committee  have  not  only  committed 
an  error  to  the  amount  of  7,500,000f.  in  their  estimate  of  the 
balance  of  exports,  but  other  errors  to  a  still  greater  amount ;  and 
that,  in  fact,  so  far  from  their  opinion  being  well  founded,  that  the 
state  of  the  exchange  ought  to  have  been  favourable  to  this  country 
during  the  past  year,  the  actual  amount  of  the  balance  of  payments 
to  the  Continent  had  been  unusually  great. 

As  I  am  desirous  only  of  defending  the  principles  of  the  Com¬ 
mittee,  and  as  these  facts  are  by  no  means  essential  to  those  prin¬ 
ciples,  I  shall  not  enter  into  any  examination  of  the  correctness 
either  of  the  statements  of  the  Committee,  or  of  those  of  Mr 
Bosanquet,  but  will  at  once  concede  to  him  the  facts,  difficult  as  he 
would  find  it  to  prove  all  of  them,  for  which  he  contends. 

That  the  balance  of  payments  has  been  against  this  country 
cannot,  I  conceive,  admit  of  dispute.  The  state  of  the  real  exchange 
sufficiently  proves  it,  as  that  infallibly  indicates  from  which  country 
bullion  is  passing.  It  would,  however,  have  been  of  some  satisfac¬ 
tion  to  those  who  are  desirous  of  clearly  understanding  this  difficult 
subject,  if  Mr  Bosanquet  had  acquainted  us  with  the  means  which 
we  possessed  of  paying  the  very  large  unfavourable  balance  for 
which  he  contends.  Does  he  imagine  that  it  has  actually  been 
discharged  with  our  own  hoard  of  gold  ?  Do  we  usually  keep 


ON  REPORT  OF  BULLION  COMMITTEE. 


335 


unemployed  such  a  large  amount  of  bullion  that  we  can  afford  to 
pay  such  balances  year  after  year  ? 

As  we  have  no  mines  of  our  own,  if  we  do  not  actually  possess 
it,  we  must  purchase  it  from  foreign  countries  ;  but  bank  notes  will 
be  useless  for  such  purpose.  If  the  price  of  gold  in  bank  notes  be 
4 1.  per  ounce,  or  10/.  per  ounce,  we  shall  not  obtain  the  slightest 
addition  to  our  quantity  of  bullion,  as  it  can  only  be  procured  by 
the  exportation  of  goods.  If  we  obtain  it  from  America,  for  example, 
it  is  with  goods  we  must  purchase  it.  In  that  case,  on  a  view  of 
the  whole  trade  of  the  country,  we  have  discharged  a  debt  in 
Europe  by  the  exportation  of  goods  to  some  other  part  of  the  world, 
and  the  balance  of  payments,  however  large  it  may  be,  must 
ultimately  be  paid  by  the  produce  of  the  labour  of  the  people  of 
this  country.  Bills  of  exchange  never  discharge  a  debt  from  one 
country  to  another;  they  enable  a  creditor  of  England  to  receive, 
at  the  place  where  he  is  resident,  a  sum  of  money  from  a  debtor  to 
England ;  they  effect  a  transfer  of  a  debt,  but  do  not  discharge  it. 
That  a  demand  for  gold  (if  it  could  be  allowed  that  our  creditor 
would  accept  nothing  but  gold)  might  occasion  a  rise  n;  its  value, 
no  one  denies.  If,  therefore,  goods  had  become  exceedingly  cheap, 
it  would  have  been  the  natural  effect  of  such  a  cause.  But  how  is 
any  rise  in  its  price  in  bank  notes  to  procure  it,  even  if  we  suppose 
it  hoarded  in  England  ? 

The  seller  is  not  to  be  deluded  with  an  increase  of  nominal  value ; 
it  will  be  to  him  of  little  importance  whether  he  sells  his  gold  at 
3/.  17s.  l(Hd.,  or  at  4/.  12s.  per  ounce,  provided  either  of  those 
sums  will  procure  him  the  commodities  for  which  he  intends  ulti¬ 
mately  to  exchange  his  gold.  If,  then,  bank  notes  to  the  amount 
of  3/.  17s.  lO^d.  be  rendered  of  equal  value  in  procuring  the  com¬ 
modities  which  he  seeks  to  purchase,  with  4/.  12s.,  as  much  gold 
will  be  procured  at  one  price  as  at  the  other.  Now,  can  it  be 
denied,  that  by  reducing  the  amount  of  bank  notes  their  value  will 
be  increased  ?  If  so,  how  can  the  reduction  of  bank  notes  prevent 
us  from  obtaining  the  same  amount  of  gold,  both  at  home  and 
abroad,  to  discharge  our  foreign  debt,  as  we  now  obtain  by  a  no¬ 
minal  and  fictitious  price  ? 

“  At  a  moment,”  says  Mr  Bosanquet,  “  when  we  were  compelled 
to  receive  corn,  even  from  our  enemy,  without  the  slightest  stipu¬ 
lation  in  favour  of  our  own  manufacturer,  and  to  pay  neutrals  for 
bringing  it,  Mr  Ricardo  tells  us,  that  the  export  of  bullion  and 
merchandise,  in  payment  of  the  corn  we  may  export,  resolves  itseli 
entirely  into  a  question  of  interest,  and  that,  if  we  give  corn  in 
exchange  for  goods,  it  must  be  from  choice,  not  necessity.  Whilst 
providing  against  famine,  he  tells  us,  that  we  should  not  import 
more  goods  than  we  export,  unless  we  had  a  redundancy  of  cur¬ 
rency.” 

Mr  Bosanquet  speaks  as  if  the  nation  collectively,  as  one  body, 
imported  corn  and  exported  gold,  and  that  it  was  compelled  by 


336  REPLY  TO  JIR  BOSANQUET’S  OBSERVATIONS 

hunger  so  to  do,  not  reflecting  that  the  importation  of  corn,  even 
under  the  case  supposed,  is  the  act  of  individuals,  and  governed  by 
the  same  motives  as  all  other  branches  of  trade.  What  is  the  degree 
of  compulsion  which  is  employed  to  make  us  receive  corn  from  our 
enemy?  I  suppose  no  other  than  the  want  of  that  conunoditv 
which  makes  it  an  advantageous  article  of  import :  but  if  it  be  a 
voluntary,  as  it  most  certainly  is,  and  not  a  compulsory  bargain 
between  the  two  nations,  I  do  still  maintain  that  gold  would  not, 
even  if  famine  raged  amongst  us,  be  given  to  France  in  exchange 
for  corn,  unless  the  exportation  of  gold  was  attended  with  advan¬ 
tage  to  the  exporter,  unless  he  could  sell  corn  in  England  for  more 
gold  than  he  was  obliged  to  give  for  the  purchase  of  it. 

Would  Mr  Bosanquet,  would  any  merchant  he  knows,  import 
corn  for  gold  on  any  other  terms  ?  If  no  importer  would,  how  could 
the  corn  be  introduced  into  the  country,  unless  gold  or  some  other 
commodity  were  cheaper  here  ?  As  far  as  those  two  commodities 
are  concerned,  do  not  these  transactions  as  certainly  indicate  that 
gold  is  dearer  in  France,  as  that  corn  is  dearer  in  England  ? 

Seeing  nothing  in  Mr  Bosanquet’s  statement  to  induce  me  to 
change  my  opinion,  I  must  continue  to  think  that  it  is  interest,  and 
interest  alone,  which  determines  the  exportation  of  gold,  in  the 
same  manner  as  it  regulates  the  exportation  of  all  other  com¬ 
modities.  Mr  Bosanquet  would  have  done  well,  before  he  had 
deemed  this  opinion  so  extravagant,  to  have  used  something  like 
argument  to  prove  it  so  ;  and  he  would  not  have  hurt  his  cause,  if, 
even  in  the  year  1810,  he  had  explained  his  reason  for  supporting 
a  principle  advanced  by  Mr  Thornton  in  1802,  the  correctness  of 
which  was  questioned  in  1809. 

Bullion  will  not  be  exported  unless  we  have  previously  imported 
it  for  such  purpose,  or  unless  from  some  circumstances  in  our  in¬ 
ternal  circulation  it  has  been  rendered  cheap  and  less  useful  to  us. 
If  Milan  decrees,  embargoes,  non-intercourse  acts,  &c.,  affect  the 
exportation  of  commodities,  they  also  affect  their  importation,  as 
no  country  can  long  continue  to  buy  unless  it  can  also  sell ;  and 
least  of  all,  England,  who  by  the  abundance  of  her  paper  has  driven 
from  her  circulation  every  vestige  of  the  precious  metals. 

“  If  the  currency  be  depreciated  below  the  value  of  gold,” 
Mr  Bosanquet  tells  us,  “  it  is  so  positively,  not  relatively,  and  all 
exchanges  must  equally  feel  the  influence  of  the  depreciation.” 
(Page  20).  Most  true  ;  and  therefore  if  Mr  Bosanquet  could  have 
shown  that  with  any  one  country  in  the  icorld  whose  currency  is  not 
debased  nor  depreciated,  the  exchange  had  been  favourable  to 
England,  he  would  have  successfully  controverted  the  opinion  of 
the  Committee. 

Some  able  writers  on  this  subject  have  lately  taken,  I  think,  a 
mistaken  view  of  the  exportation  of  money,  and  of  the  effects 
produced  on  the  price  of  bullion  by  an  increase  of  currency  through 
paper  circulation. 


OX  REPORT  OF  BULLION  COMMITTEE. 


337 


Mr  Blake  observes,  “  All  writers  upon  the  subject  of  political 
economy  that  I  have  met  with  seem  to  be  persuaded  that,  when 
the  rate  of  exchange  has  deviated  from  par  beyond  tbe  expenses  of 
the  transit  of  bullion,  bullion  will  immediately  pass ;  and  the  error 
has  arisen  from  not  sufficiently  distinguishing  the  effects  of  a  real 
and  a  nominal  exchange and  many  pages  are  employed  in  prov¬ 
ing,  that  on  every  addition  to  the  paper  circulation,  even  when  a 
great  part  of  the  currency  consists  of  the  precious  metals,  the  price 
of  bullion  will  be  raised  in  the  same  proportion  as  other  commodities  ; 
and  as  the  foreign  exchange  will  be  nominally  depressed  in  the 
same  degree,  no  advantage  will  arise  from  the  exportation  of  bullion. 
The  same  opinion  is  maintained  by  Mr  Huskisson,  page  27. 

u  If  the  circulation  of  a  country  were  supplied  partly  by  gold 
md  partly  by  paper,  and  the  amount  of  that  circulation  were 
loubled  by  an  augmentation  of  that  paper,  the  effect  upon  prices 
it  home  would  be  the  same  as  in  the  former  case”  (a  rise  in  the 
orice  of  commodities).  “  But  gold  not  becoming,  by  this  aug¬ 
mentation  of  currency,  more  abundant  in  such  a  country  than  in 
pther  parts  of  the  world,  as  a  commodity /,  its  relative  value  to  other 
commodities  would  remain  unaltered;  as  a  commodity,  also,  its 
>rice  would  rise  in  the  same  proportion  as  that  of  other  commodities, 
ilthough,  in  the  state  of  coin,  of  which  the  denomination  is  fixed  by 
aw,  it  could  only  pass  current  according  to  that  denomination. 

11  When  paper  is  thus  augmented  in  any  country,  the  exportation 
Iff  the  gold  coin,  therefore,  will  take  place ;  not  because  gold,  as  a 
: ommodity ,  is  become  more  abundant  and  less  valuable  with  reference 
;o  other  commodities  in  such  a  country ;  but,  from  the  circumstance 
if  its  value  as  currency  remaining  the  same,  while  its  price  in  that 
currency  is  increased  in  common  with  the  prices  of  all  other  com- 
nodities.” 

I  should  perfectly  agree  with  these  writers,  that  the  effects  on 
lie  value  of  gold,  as  an  exportable  commodity,  would  be  as  they 
lescribe,  provided  the  circulation  consisted  wholly  of  paper ;  but 
io  rise  would  take  place  in  the  price  of  bullion  in  consequence  of 
in  addition  of  paper  currency,  whilst  the  currency  was  either  wholly 
netallic,  or  consisted  partly  of  gold  and  partly  of  paper. 

If  an  addition  be  made  to  a  currency  consisting  partly  of  gold 
md  partly  of  paper,  by  an  increase  of  paper  currency,  the  value  of 
he  whole  currency  would  be  diminished,  or,  in  other  words,  the 
irices  of  commodities  would  rise,  estimated  either  in  gold  coin  or 
n  paper  currency.  The  same  commodity  would  purchase,  after 
he  increase  of  paper,  a  greater  number  of  ounces  of  gold  coin, 
>ecausc  it  would  exchange  for  a  greater  quantity  of  money.  But 
hese  gentlemen  do  not  dispute  the  fact  of  the  convertibility  of 
:oin  into  bullion,  in  spite  of  the  law  to  prevent  it.  Does  it  not 
ollow,  therefore,  that  the  value  of  gold  in  coin,  and  the  value  of 
cold  in  bullion,  would  speedily  approach  a  perfect  equality?  If, 
hen,  a  commodity  would  sell,  in  consequence  of  the  issue  of  paper, 


REPLY  TO  MR  BOSANQUET’S  OBSERVATIONS 


338 

for  more  gold  coin,  it  would  also  sell  for  more  gold  bullion.  ]v 
cannot,  therefore,  be  correct  to  say,  that  the  relative  value  of  gold 
bullion  and  commodities  would  he  the  same  after,  as  before,  the 
increase  of  paper. 

The  diminution  in  the  value  of  gold,  as  compared  with  com¬ 
modities,  in  consequence  of  the  issues  of  paper  in  a  country  where 
gold  forms  part  of  the  circulation,  is,  in  the  first  instance,  confined 
to  that  country  only.  If  such  country  were  insulated,  and  had  no 
commerce  whatever  with  any  other  country,  this  diminution  in  the 
value  of  gold  would  continue  till  the  demand  for  gold  for  its 
manufactures  had  withdrawn  the  whole  of  its  coin  from  circulation, 
and  not  till  then  would  there  he  any  visible  depreciation  in  the 
value  of  paper  as  compared  with  gold,  whatever  the  amount  of  paper 
might  be  which  was  in  circulation. 

As  soon  as  the  gold  had  been  wholly  withdrawn,  the  demand  for 
manufactures  still  continuing,  gold  would  rise  above  the  value  of 
paper,  and  would  soon  obtain  that  relative  value  to  other  commo¬ 
dities  which  subsisted  before  any  addition  had  been  made  to  the 
circulation  by  the  issues  of  paper.  The  mines  would  then  supply 
the  quantity  of  gold  required,  and  the  paper  currency  would  con¬ 
tinue  to  be  permanently  depreciated.  During  this  interval,  the 
gold  mines  of  such  country,  if  it  possessed  any,  could  not  be  worked, 
because  of  the  low  value  of  gold,  which  would  have  reduced  the 
profits  on  capital  employed  in  the  mines  below  the  level  of  the 
profits  of  other  mercantile  concerns.  As  soon  as  this  equality  ol 
profit  were  established,  the  supply  of  gold  would  be  as  regular  as 
before.  These  would  be  the  consequences  of  a  great  issue  of  paper 
in  a  country  having  no  intercourse  with  any  other. 

But  if  the  country  supposed,  as  is  the  case  with  England,  had 
intercourse  with  all  other  countries,  any  excess  of  her  currency 
would  be  counteracted  by  an  exportation  of  specie,  and  if  that 
excess  did  not  exceed  the  amount  of  coin  in  circulation,  which 
could  be  easily  collected  by  those  who  evade  the  law,  no  deprecia¬ 
tion  of  the  currency  would  take  place. 

Suppose  England  to  have  1000  ounces  of  gold  in  the  state  of 
bullion,  and  1000  ounces  in  the  state  of  coin,  whilst  her  exchange 
with  foreign  countries  was  at  par  ;  that  is  to  say,  whilst  the  value 
of  gold  abroad  was  precisely  the  same  as  here,  and  therefore  couh 
be  neither  advantageously  exported  nor  imported. 

Suppose,  too,  that  the  Bank  were  at  such  time  to  issue  notes  t( 
an  amount  which  should  represent  1000  ounces  more  of  gold,  am 
that  they  were  not  exchangeable  for  specie.  If  her  bullion  retainei 
the  same  value  after  as  before  the  issue  of  paper  (which  is  the  poin 
contended  for),  how  could  a  single  guinea  be  exported?  Win 
would  be  at  the  trouble  and  risk  of  sending  guineas  to  the  Continen 
to  be  sold  there  for  their  value  as  bullion,  while  the  value  of  bullioi 
continued  here  as  high  as  before,  anal  consequently  as  high  as  tin 
price  abroad?  Would  not  the  coin  be  melted  and  sold  as  bullioi 


OJJ  REPORT  OF  BULJ.ION  COMMITTEE. 


339 


at  home,  till  the  value  of  bullion  had  so  much  diminished  in  its 
relative  value  to  the  bullion  of  other  countries,  and  therefore  to  the 
relative  value  of  commodities  here,  as  to  pay  the  expenses  of  trans¬ 
portation  ;  or,  in  other  words,  till  the  exchange  had  fallen  to  the 
price  at  which  it  would  repay  such  expenses  ?  At  that  price  the 
whole  1000  ounces  would  go  at  once,  or  if  any  part  were  retained 
in  circulation,  it  would  not  be  of  less  value  than  an  equal  weight  of 
gold  bullion.  1  am  all  along  considering  the  law  as  having  no 
effect  in  preventing  exportation,  and  if  it  be  contended  that  the  law 
could  be  strictly  executed,  that  argument  would  be  equally  appli¬ 
cable  if  the  addition  to  the  currency  had  been  made  in  gold  coin, 
and  not  in  paper  currency. 

It  appears,  therefore,  evident,  first,  that  by  the  addition  of  paper 
to  a  currency  consisting  partly  of  gold  and  partly  of  paper,  gold 
bullion  will  not  necessarily  rise  in  the  same  degree  as  other  com¬ 
modities ;  and,  secondly,  that  such  addition  will  cause  depression 
not  in  the  nominal  but  in  the  real  exchange,  and  therefore  that  gold 
will  be  exported. 

But  to  return  to  Mr  Bosanquet.  He  observes,  “  that  the  three 
propositions,”  viz.  those  on  which  I  have  been  commenting,  “appear 
to  have  been  brought  forward  by  the  Committee  as  well  as  by  the 
authors  on  whose  theories  the  Report  is  founded,  to  induce  the 
admission  of  the  depreciation  of  the  paper  currency  of  this  country 
is  the  necessary  consequence  of  the  impossibility  of  accounting  for 
the  depression  of  the  exchanges  and  the  increased  price  of  bullion 
in  any  other  way.  They  may  be  termed  negative  arguments.” 

Now,  as  far  as  I,  who  am  one  of  the  authors  arraigned,  am  con¬ 
cerned,  Mr  Bosanquet  is  incorrect :  the  third  of  these  propositions 
was  not  on  any  occasion  brought  forward  by  me.  The  fact  of  the 
balance  of  payments  being  for  or  against  this  country  could  be  of 
ittle  consequence,  in  my  estimation,  to  the  proof  of  the  theory  which 
1  maintain.  Whether  a  part  of  our  exports  or  a  part  of  our  imports 
consisted  of  gold  cannot  in  the  least  affect  this  question  ;  it  is 
tbundantly  certain  that  our  currency  is  neither  by  ourselves  nor  by 
breigners  estimated  at  its  bullion  value.  And  why  should  our 
'iirrency  be  degraded  below  such  value  more  than  those  of  America, 
ranee,  Hamburgh,  Holland,  &c.  ?  The  answer  is,  because  neither 
>f  those  countries  have  a  paper  currency  not  convertible  into  specie 
it  the  will  of  the  holder. 


REPLY  TO  MR  BOSAXQUET’s  OBSERVATIONS 


340 


CHAPTER  Y. 


MR  BOSANQUET’S  ARGUMENT  TO  PROVE  THAT  THE  BANK  OP 

ENGLAND  HAS  NOT  THE  POWER  OF  FORCING  THE  CIRCULATION 

OF  BANK  NOTES,  CONSIDERED. 

The  fourth  proposition  is  what  now  presents  itself  for  discussion  : 

“  That  the  Bank,  during  the  restriction,  possesses  exclusively  the 
power  of  limiting  the  circulation  of  bank  notes.” 

It  is  difficult  to  determine  whether  Mr  Bosanquet  thinks  that 
even  a  forced  paper  circulation  could  have  the  effect  of  lowering  the ! 
exchange  ;  so  confidently  is  it  asserted  by  him  that  there  is  no  con¬ 
nexion  between  the  exchanges  and  the  amount  of  bank  notes.  If 
the  Bank  wei’e  to  become  truly  a  Government  Bank,  in  the  sense  in 
which  Mr  Bosanquet  somewhere  uses  that  term  ;  if  they  were  to 
advance  all  the  money  requisite  for  the  service  of  the  year;  if  from 
20  millions  they  were  to  raise  the.  amount  of  their  notes  to  50 
millions,  would  not  such  a  bank  be  justly  said  to  force  a  circulation 
of  paper?  and  would  not  the  effect  of  such  a  forced  circulation  of1 
paper  be,  that  their  notes  would  be  depreciated,  that  the  price 
of  bullion  would  rise,  and  the  foreign  exchanges  fall?  Would  not 
these  effects  take  place  although  Government  were  to  guarantee 
the  notes  of  the  Bank,  and  the  final  payment  of  them  should  by  no 
one  be  doubted?  Would  not  the  abundance  of  the  circulation  alone 
produce  depreciation  ?  Or,  is  it  to  be  maintained  that  no  abundance 
of  paper  money,  provided  its  final  redemption  be  certain,  can  cause 
depreciation  ?  A  proposition  so  extravagant  will  hardly,  I  think,  j 
be  supported,  and  it  must  therefore  be  admitted  that  depreciation 
may  arise  from  the  abundance  of  notes  alone,  however  great  might 
be  the  funds  of  those  who  were  the  issuers  of  them.  As  these 
symptoms,  then,  which  accompany  a  forced  paper  currency  are,  at 
this  moment,  too  glaring  to  be  denied,  as  they  cannot  be  accounted 
for  in  any  other  way  either  by  theory  or  by  an  appeal  to  experience, 
are  we  not  justified  in  our  suspicions  that  the  Bank  of  England,  as. 
at  present  constituted,  is  not  so  devoid  of  the  power  of  forcing  a  ,  j 
circulation  as  their  friends  would  have  us  believe  ?  It  is  not 
intended  by  the  words,  forced  circulation,  to  accuse  the  Bank  o 
having  departed  from  those  cautions  which  have  usually  accompanied 
the  issue  of  their  paper;  it  is  meant  only  that  the  restriction  bil 
enables  them  to  keep  in  circulation  an  amount  of  notes  (allowance  ) 


ON  RETORT  OF  BULLION  COMMITTEE. 


341 


made  for  the  coin  that  would  then  be  in  circulation)  greater  than 
they  could  maintain  but  for  that  measure.  It  is  this  surplus  sum 
which  I  consider  as  producing  precisely  the  same  effects  as  if  it 
were  forced  on  the  public  by  a  Government  Bank.  The  plea  that 
no  more  is  issued  than  the  wants  of  commerce  require  is  of  no 
weight  ;  because  the  sum  required  for  such  purpose  cannot  be 
defined.  Commerce  is  insatiable  in  its  demands,  and  the  same 
portion  of  it  may  employ  10  millions  or  100  millions  of  circulating 
medium ;  the  quantity  depends  wholly  on  its  value.  If  the  mines 
had  been  ten  times  more  productive,  ten  times  more  money  would 
the  same  commerce  employ.  This  Mr  Bosanquet  admits,  but  denies 
the  analogy  between  the  issues  of  the  Bank  and  the  produce  of  a  new 
gold  mine. 

On  this  subject  Mr  Bosanquet  makes  the  following  observations  : 

“  Mr  Ricardo  has  assimilated  the  Bank  of  England  during  the 
restriction,  so  far  as  relates  to  the  effects  of  its  issues,  to  a  gold 
mine,  the  produce  of  which  being  thrown  into  circulation,  in  addi¬ 
tion  to  the  circulating  medium  already  sufficient,  is  an  excess  ;  and 
lias  the  acknowledged  effect  of  depreciating  the  value  of  the  existing 
medium,  or,  in  other  words,  of  raising  the  prices  of  commodities 
for  which  it  is  usually  exchanged.  But  Mr  Ricardo  has  not  stated 
what  is  essential  to  the  comparison,  why  it  is  that  the  discovery  of 
a  gold  mine  would  produce  this  effect.  It  would  produce  it,  because 
the  proprietors  would  issue  it,  for  whatever  services,  without  any 
engagement,  to  give  an  equal  value  for  it  again  to  the  holders,  or 
any  wish,  or  any  means,  of  calling  back  and  annihilating  that  which 
they  have  issued.  By  degrees,  as  the  issues  increase  they  exceed 
the  wants  of  circulation  ;  gold  produces  no  benefit  to  the  holder  as 
gold;  he  cannot  eat  it,  nor  clothe  himself  with  it;  to  render  it  use¬ 
ful,  he  must  exchange  it  either  for  such  things  as  are  immediately 
useful,  or  for  such  as  produce  revenue.  The  demand,  and  conse¬ 
quently  the  prices,  of  commodities  and  real  properties  measured  in 
gold,  increases,  and  will  continue  to  increase  as  long  as  the  mine 
continues  to  produce.  And  this  effect  will  equally  follow  whether, 
under  the  circumstances  I  have  supposed,  the  issue  be  geld  from  a 
mine  or  paper  from  a  Government  Bank.  All  this  I  distinctly  admit ; 
hut  in  all  this  statement,  there  is  not  one  point  of  analogy  to  the 
issues  of  the  Bank  of  England. 

“  But  the  principle  on  which  the  Bank  issues  its  notes  is  that  oi 
loan.  Every  note  is  issued  at  the  requisition  of  some  party,  who 
becomes  indebted  to  the  Bank  for  its  amount,  and  gives  security  to 
return  this  note,  or  another  of  equal  value,  at  a  fixed  and  not  remote 
period  ;  paying  an  interest  proportioned  to  the  time  allowed.” 

Now,  supposing  the  gold  mine  to  be  actually  the  property  of  the 
Bank,  even  to  be  situated  on  their  own  premises,  and  that  they 
procured  the  gold  which  it  produced  to  be  coined  into  guineas,  and 
in  lieu  of  issuing  their  notes  when  they  discounted  bills  or  lent 
money  to  Government,  that  they  issued  nothing  but  guineas  :  could 


84  l  REPLY  TO  MR  BOSANQUET'S  OBSERVATIONS 

there  be  any  other  limit  to  their  issues  but  the  want  of  the  further 
productiveness  in  their  mine  ?  In  what  would  the  circumstances 
differ  if  the  mine  were  the  property  of  the  king,  of  a  company  of 
merchants,  or  of  a  single  individual  ?  In  that  case  Mr  Bosanquet 
admits  that  the  value  of  money  would  fall,  and  I  suppose  he  would 
also  admit  that  it  woidd  fall  in  exact  proportion  to  its  increase. 

Wh  at  would  be  done  with  the  gold  by  the  owner  of  the  mine  ? 
It  must  be  either  employed  at  interest  by  himself,  or  it  would 
finally  find  its  way  into  the  hands  of  those  who  would  so  employ  it. 
This  is  its  natural  destination  ;  it  may  pass  through  the  hands  of 
100  or  1000  persons,  but  it  could  be  employed  in  no  other  manner 
at  last.  Now,  if  the  mine  should  double  the  quantity  of  money,  it 
would  depress  its  value  in  the  same  proportion,  and  there  would  he 
double  the  demand  for  it.  A  merchant  who  before  required  the 
loan  of  10,000/.  would  now  want  20,000/. ;  and  it  could  be  of  little 
importance  to  him  whether  he  continued  to  borrow  10,000/.  of  the 
Bank,  and  10,000/.  of  those  with  whom  the  money  finally  rested, 
or  whether  he  borrowed  the  whole  20,000/.  of  the  Bank.  The 
analogy  seems  to  me  to  be  complete,  and  not  to  admit  of  dispute. 
The  issues  of  paper  not  convertible  are  guided  by  the  same  prin¬ 
ciple,  and  will  be  attended  with  the  same  effects  as  if  the  Bank 
were  the  proprietor  of  the  mine,  and  issued  nothing  but  gold. 
However  much  gold  may  be  increased,  borrowers  will  increase  tc 
the  same  amount,  in  consequence  of  its  depreciation;  and  the  same 
rule  is  equally  true  with  respect  to  paper.  If  money  be  but  depre¬ 
ciated  sufficiently,  there  is  no  amount  which  may  not  be  absorbed, 
and  it  would  not  make  the  slightest  difference  whether  the  Bank 
with  their  notes  actually  purchased  the  commodities  themselves, 
or  whether  they  discounted  the  bills  of  those  who  would  so  employ 
them. 

If  it  were  granted  to  Mr  Bosanquet  that  a  given  sum,  and  no 
more,  could  be  absorbed  in  the  circulation,  the  effects  he  states 
would  follow :  but  I  deny  that  there  would  be  a  surplus  seeking  in 
vain  for  advantageous  employment,  and  which,  not  being  able  to  find 
it,  would  necessarily  either  return  to  the  Bank  in  payment  of  a  bill 
already  discounted,  or  woidd  prevent  an  application  to  them  for 
an  advance  of  money  to  that  amount. 

If  money,  however  abundantly  issued,  could  retain  its  value, 
such  might  be  the  effects  ;  but  as,  when  once  it  is  brought  into 
circulation,  depreciation  commences,  the  employment  for  the  addi¬ 
tional  sum  would  retain  it  in  the  currency. 

Let  us  recur  to  the  effect  which  would  result  from  the  establish¬ 
ment  of  a  bank  of  undoubted  credit  in  a  country  where  the  circulation 
was  wholly  metallic. 

Such  a  bank  would  discount  bills  or  make  advances  to  Govern-, 
ment  as  our  Bank  does  ;  and  if  the  principle  now  contended  for  by 
Mr  Bosanquet  be  correct,  their  notes  would  necessarily  return  on 
them  as  soon  as  issued ;  because  the  metallic  currency  being  before 


ON  REPORT  OF  BULLION  COMMITTEE. 


343 


i  sufficient  for  the  commerce  of  the  country,  no  additional  quantity 
could  be  employed. — But  this  is  contrary  both  to  theory  and  expe¬ 
rience.  The  issues  of  the  Bank  would,  as  they  now  do,  not  only 
depreciate  the  currency,  but  the  value  of  bullion  at  the  same  time, 
as  I  have  endeavoured  to  explain  at  page  338  ;  this,  again,  would  be 
the  temptation  to  exportation,  and  the  diminution  of  the  currency 
would  make  it  regain  its  value.  The  Bank  would  issue  more  notes, 
and  the  same  effects  would  follow  ;  but  in  no  case  would  there  be 
such  an  excess  as  would  induce  any  holder  of  notes  to  return  them 
to  the  Bank  in  payment  of  loans,  if  the  law  against  the  exportation 
of  money  could  be  effectually  executed.  Money  would  be  demanded 
because  it  could  be  profitably  exported,  and  not  because  it  could  not 
be  absorbed  in  the  circulation.  But  let  us  suppose  a  case  in  which 
money  could  not  be  profitably  exported — Let  us  suppose  all  the 
countries  of  Europe  to  carry  on  their  circulation  by  means  of  the 
precious  metals,  and  that  each  were  at  the  same  moment  to  establish 
a  Bank  on  the  same  principles  as  the  Bank  of  England — Could  they, 
or  could  they  not,  each  add  to  the  metallic  circulation  a  certain  por¬ 
tion  of  paper  ?  and  could  or  could  they  not  permanently  maintain 
that  paper  in  circulation  ?  If  they  could,  the  question  is  at  an  end  ; 
an  addition  might  then  be  made  to  a  circulation  already  sufficient, 
without  occasioning  the  notes  to  return  to  the  Bank  in  payment  of 
bills  due.  If  it  is  said  they  could  not,  then  I  appeal  to  experience, 
and  ask  for  some  explanation  of  the  manner  in  which  bank  notes 
were  originally  called  into  existence,  and  how  they  are  permanently 
kept  in  circulation. 

I  should  find  it  laborious  to  follow  up  in  all  its  bearings  the  ana¬ 
logy  between  the  first  establishment  of  a  Bank,  the  discovery  of  a 
mine,  and  the  present  situation  of  our  Bank  ;  but  of  this  I  am  fully 
certain,  that  if  the  principle  advanced  by  the  Bank  Directors  be 
correct,  not  a  bank  note  could  ever  have  been  permanently  kept  in 
circulation,  nor  would  the  discovery  of  the  mines  of  America  have 
added  one  guinea  to  the  circulation  of  England.  The  additional 
gold  would,  according  to  this  system,  have  found  a  circulation 
already  adequate,  and  in  which  no  more  could  be  admitted. 

The  refusal  to  discount  any  bills  but  those  for  bond  fide  transac¬ 
tions  would  be  as  little  effectual  in  limiting  the  circulation  ;  because, 
though  the  Directors  should  have  the  means  of  distinguishing  such 
hills,  which  can  by  no  means  be  allowed,  a  greater  portion  of  paper 
currency  might  be  called  into  circulation,  not  than  the  wants  of 
commerce  could  employ,  but  greater  than  what  could  remain  in  the 
channel  of  currency  without  depreciation.  It  is  well  known  that 
the  same  thousand  pounds  may  settle  20  bond  fide  transactions  in 
one  day.  It  may  pay  for  a  ship  ;  the  seller  of  a  ship  may  pay  with 
it  his  rope-maker ; — he  again  may  pay  the  Russian  merchants  for 
hemp,  &c.,  &c.  Now,  as  each  of  these  was  a  bond  fi.de  transaction, 
a  bill  might  have  been  drawn  by  each,  and  the  Bank,  by  their  rule, 
might  discount  them  all ;  so  that  20,000f.  might  be  called  into 


344 


REPLY  TO  MR  BOSANQUET’S  OBSERVATIONS 


circulation  to  perform  those  payments  for  which  1000Z.  was  equal, 
I  am  aware  that  the  opinion  of  Dr  Smith,  as  quoted  by  Mr  Bosun- 
quet,  appears  to  favour  his  opinion  ;  but  that  able  writer  has,  in 
various  passages  of  his  work,  and  within  a  few  pages  of  that  from 
whence  Mr  Bosanquet  has  quoted,  declared  that  “  The  whole 
paper  money  of  every  kind  which  can  easily  circulate  in  any  country 
can  never  exceed  the  value  of  the  gold  and  silver  of  which  it  sup¬ 
plies  the  place,  or  which  (the  commerce  being  supposed  the  same) 
would  circulate  there  if  there  were  no  paper  money.” 

To  this  test  wre  must  not  submit  our  currency.  If  at  its  present 
amount  it  consisted  of  gold  and  silver,  no  laws,  however  severe, 
could  retain  it  in  circulation ;  a  part  would  be  melted  and  exported 
till  it  was  reduced  to  its  just  level.  At  that  level  it  would  be  as 
impossible  to  force  the  exportation  of  it.  In  such  case  we  should 
no  longer  hear  of  the  balance  of  payments  being  against  us,  nor  of 
the  necessity  of  exporting  gold  in  return  for  corn.  That  such  would 
be  the  consequences  cannot  be  doubted  by  those  who  are  familiar 
with  the  writings  of  Dr  Smith.  But  if  it  should  be  otherwise,  if 
the  Continent  should  adopt  the  almost  impossible,  absurd  policy  of 
wishing  to  buy  more  of  that  of  which  they  already  had  too  much, 
what  evil  consequences  would  ensue  to  us,  even  if  our  currency 
were  reduced  to  the  same  level  at  which  it  stood  before  the  disco¬ 
very  of  America?  Would  not  this  be  a  national  gain?  inasmuch 
as  the  circulation  of  the  same  commerce  being  carried  on  with  a 
smaller  amount  of  gold,  the  balance  might  be  profitably  employed 
in  procuring  a  return  of  more  useful  and  more  productive  commo¬ 
dities.  And  if  the  circulation  of  paper  were  reduced  in  the  same 
proportion,  would  not  the  profits  now  gained  by  the  Bank  be 
enjoyed  by  those  who  can  show  a  much  better  title  to  them? 

It  is  fortunate  for  the  public  that  there  should  exist  the  disin¬ 
clination  to  discount  at  the  Bank  whioh  Mr  Bosanquet  mentions, — 
as  without  some  such  check,  it  is  impossible  to  say  to  what  amount 
bank  notes  might  by  this  time  have  been  multiplied.  Indeed,  to 
all  those  who  have  given  the  subject  any  consideration,  it  is  matter 
of  surprise  that  our  circulation  has  been  confined  within  such  moder¬ 
ate  bounds,  after  knowing  the  principles  which  the  Bank  Directors 
have  avowed  as  their  guide  in  regulating  their  issues. 


ON  REPORT  OF  BULLION  COMMITTEE. 


345 


CHAPTER  VI. 


OBSERVATIONS  ON  THE  PRINCIPLES  OF  SEIGNORAGE. 

Dr  Smith,  though  favourable  to  a  small  seignorage  on  the  coin, 
was  fully  aware  of  the  evils  which  might  attend  a  large  one. 

The  limits,  beyond  which  a  seignorage  cannot  be  advantageously 
extended,  arc  the  actual  expenses  incurred  by  the  manufacturing 
of  bullion  into  coin.  If  a  seignorage  exceeds  these  expenses,  an 
advantage  will  accrue  to  false  coiners  by  imitating  the  coins,  although 
they  should  actually  make  them  of  their  legal  weight  and  standard  ; 
but  even  in  this  case,  as  the  addition  of  money  to  the  circulation 
beyond  the  regular  demands  of  commerce  will  diminish  the  value  of 
that  money,  the  trade  of  false  coiners  must  cease  when  the  value  of 
the  coin  does  not  exceed  the  value  of  bullion  more  than  the  actual 
expenses  of  fabrication.  If  the  public  could  be  secured  from  such 
illegal  additions  to  the  circulating  medium,  there  could  be  no 
seignorage  so  high  which  a  Government  might  not  advantageously 
exact;  as  the  coined  money  would,  in  the  same  degree,  exceed  the 
value  of  bullion.  If  the  seignorage  amounted  to  10  per  cent.,  bullion 
would  necessarily  be  10  per  cent,  under  the  Mint  price;  and  if  it 
were  50  per  cent.,  that  also  would  the  value  of  coin  exceed  the 
value  of  bullion.  It  appears,  then,  that  although  a  given  weight 
of  bullion  can  never  exceed  in  value  a  given  weight  of  coin,  a  given 
weight  of  coin  may  exceed  in  value  a  given  weight  of  bullion  by 
the  whole  expense  of  seignorage,  however  great  that  seignorage 
may  be,  provided  that  there  was  effectual  security  against  the 
increase  of  money  through  the  imitation  of  the  coins  by  illegal 
means.  And  it  appears  also,  that  if  no  such  security  could  be 
given,  the  trade  of  the  false  coiner  would  cease  as  soon  as  he  had 
added  so  much  to  the  amount  of  the  coin  as  to  diminish  its  value 
on  a  comparison  with  bullion,  to  the  actual  expenses  incurred. 
That  these  principles  are  correct  may  be  proved  from  the  considera¬ 
tion  of  the  circumstances  which  give  value  to  a  bank  note.  A 
bank  note  is  of  no  more  intrinsic  value  than  the  piece  of  paper  on 
which  it  is  made.  It  may  be  considered  as  a  piece  of  money  on 
which  the  seignorage  is  enormous,  amounting  to  all  its  value ;  yet 
it  the  public  is  sufficiently  protected  against  the  too  great  increase 
of  such  notes,  either  by  the  indiscretion  of  the  issuers,  or  by  the 


REPLY  TO  MR  BOSANQUET’S  OBSERVATIONS 


34  G 

practices  of  false  coiners  or  forgers,  they  must,  in  the  ordinary 
operations  of  trade,  retain  their  value. 

Whilst  such  money  is  kept  within  certain  limits,  any  value  may 
be  given  to  it  as  currency  ;  31.  17s.  KHd.  may  be  worth  an  ounce 
of  gold  bullion,  the  value  at  which  it  was  originally  issued,  or  it 
may  be  reduced  to  the  value  of  half  an  ounce;  and  if  the  Bank 
which  issued  had  the  exclusive  privilege  of  procuring  money  to  be 
coined  at  the  Mint,  31.  17s.  l(Hd.  of  their  notes  might  be  rendered 
of  equal  value  to  1,  2,  3,  or  any  number  of  ounces  of  gold  bullion. 

The  value  of  such  money  must  depend  wholly  upon  its  quantity; 
and  in  the  case  supposed,  the  Bank  would  not  only  have  the  power 
of  limiting  the  amount  of  paper  money,  but  of  metallic  money  also. 

I  have  before  endeavoured  to  show,  that,  previously  to  the  esta¬ 
blishment  of  banks,  the  precious  metals  employed  as  money  were 
necessarily  distributed  amongst  the  different  countries  of  the  world 
in  the  proportion  that  their  trade  and  payments  required;  that, 
whatever  the  value  of  the  bullion  so  employed  for  the  purposes  of 
currency  might  be,  the  equal  demands  and  necessities  of  all  countries 
would  prevent  the  quantity  allotted  to  each  from  being  either  in¬ 
creased  or  diminished,  unless  the  proportions  in  the  trade  of  countries 
should  undergo  some  alteration  which  should  make  a  different  divi¬ 
sion  necessary  ;  that  England  or  any  other  country  might  substitute 
paper  instead  of  bullion  for  the  uses  of  money,  but  that  the  value  of 
such  paper  must  be  regulated  by  the  amount  of  coin  of  its  bullion 
value  which  would  have  circulated  had  there  been  no  paper. 

Under  this  point  of  view  the  paper  currency  of  any  particular 
country  represents  a  certain  weight  of  bullion  which,  her  commerce 
and  payments  continuing  the  same,  could  neither  be  increased  nor 
diminished  ;  3 1.  17s.  lO^d.  of  coin  or  paper  currency  might  represent 
an  ounce  of  gold  bullion,  or  4 /.  13s.  might,  in  consequence  of  some 
internal  regulation,  do  the  same  ;  but  the  actual  amount  of  bullion 
so  represented  would,  under  the  same  circumstances  of  commerce 
and  payments,  be  eternally  the  same. 

Suppose  that  England’s  share  amounted  to  a  million  of  ounces ; 
if,  by  a  law  which  could  be  effectually  executed,  a  million  and  a  hall 
of  ounces  in  coin  could  be  forced  or  retained  in  circulation  by  pre¬ 
venting  its  being  melted  or  exported;  or  if,  by  means  of  a  restriction 
bill,  the  Bank  should  be  enabled  to  maintain  an  amount  of  paper 
which  should  represent  a  million  and  a  half  of  ounces  of  coined 
gold  in  circulation,  such  million  and  a  half  would  be  of  no  more 
value  in  curi/cncy  than  a  million  of  ounces ;  and  consequently  an 
ounce  and  a  half  of  coined  gold,  or  bank  notes  which  represented 
that  amount,  would  purchase  no  more  of  any  commodity  than  an 
ounce  of  gold  bullion.  If,  on  the  other  hand,  Government  were  to 
charge  a  seignorage  of  50  per  cent.,  or  if  the  issues  of  the  Bank 
were  to  be  exceedingly  limited,  whilst  they  had  also  the  exclusive 
right  of  coining,  so  that  the  whole  amount  of  their  notes  did  not 
exceed  what  should  represent,  at  the  Mint  price,  half  a  million  of 


ON  REPORT  OE  BULLION  COMMITTEE. 


:-547 

ounces  of  gold,  that  half  million  would  in  currency  pass  for  the 
;  same  value  as  the  million  of  ounces  in  one  case,  and  the  million  and 
a  half  in  the  other  did  before. 

From  these  principles  it  results,  that  there  can  exist  no  depre¬ 
ciation  of  money  but  from  excess.  However  debased  a  coinage 
may  become,  it  will  preserve  its  Mint  value,  that  is  to  say,  it  will 
pass  in  circulation  for  the  intrinsic  value  of  the  bullion  which  it 
ought  to  contain,  provided  it  be  not  in  too  great  abundance.  It  is 
a  mistaken  theory,  therefore,  to  suppose  that  guineas  of  5  dwts.  and 
8  grains  cannot  circulate  with  guineas  of  5  dwts.  or  less.  As  they 
might  be  in  such  limited  quantity  that  both  the  one  and  the  other 
might  actually  pass  in  currency  for  a  value  equal  to  5  dwts.  10  grains, 
there  would  be  no  temptation  to  withdraw  either  from  circulation; 
there  would  be  a  real  profit  in  retaining  them.  In  practice,  indeed, 
it  would  seldom  occur  that  the  heavier  pieces  would  escape  the 
melting  pot,  but  it  would  arise  wholly  from  the  augmentation  of 
such  currency,  cither  by  the  liberal  issues  of  the  Bank,  or  by  the 
supply  of  false  money  which  the  arts  of  the  false  coiner  would  throw 
into  circulation. 

Our  silver  currency  now  passes  at  a  value  in  currency  above  its 
bullion  value,  because,  notwithstanding  the  profit  obtained  by  the 
counterfeiter,  it  has  not  yet  been  supplied  in  sufficient  abundance 
to  affect  its  value. 

It  is  on  this  principle,  too,  that  the  fact  must  be  accounted  for, 
that  the  price  of  bullion  previously  to  the  recoinage  in  1G96  did 
not  rise  so  high  as  might  have  been  expected  from  the  then  debased 
state  of  the  currency ;  the  quantity  had  not  been  increased  in  the 
same  proportion  as  the  quality  had  been  debased. 

It  also  follows  from  these  principles,  that  in  a  country  where  gold 
is  the  measure  of  value,  the  price  of  gold  bullion  (where  the  law 
offers  no  restraint  against  exportation)  can  never  exceed  its  Mint 
price ;  and  that  it  can  never  fall  more  below  it  than  the  expenses 
of  coinage;  and  that  these  variations  depend  wholly  on  the  supply 
of  coin  or  paper  currency  being  proportioned  to  the  trade  of  the 
country  ;  or,  in  other  words,  that  nothing  can  raise  the  value  of 
bullion  even  so  high  as  the  Mint  price  but  an  excess  of  circulation. 
If,  indeed,  any  power  in  the  State  have  the  privilege  of  increasing 
the  paper  currency  at  pleasure,  and  be  at  the  same  time  protected 
from  the  payment  of  its  notes,  there  is  no  other  limit  to  the  rise  of 
the  price  of  gold  than  the  will  of  the  issuers. 


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348 


CHAPTER  VII. 


MR  BOSANQUET’S  OBJECTIONS  TO  THE  PROPOSITION,  THAT  THE 

CIRCULATION  OF  THE  BANK  OF  ENGLAND  REGULATES  THAT  OF 

THE  COUNTRY  BANKS,  CONSIDERED. 

The  next  proposition  which  Mr  Bosanquet  attempts  to  disprove  is 
that  in  which  the  Committee  give  it  as  their  opinion,  “  That  the 
circulation  of  country  bank  notes  depends  upon,  and  is  proportionate 
to,  the  issues  from  the  Bank.” 

There  are  many  practical  authorities  for  the  truth  of  this  principle 
also.  It  appears  to  be  singularly  unfortunate,  that  few  of  the 
principles  of  the  Bullion  Committee  which  Mr  Bosanquet  has 
selected  have  not  the  authority  of  practical  men,  to  whose  opinions 
on  these  subjects  so  much  deference  is  paid.  That  the  exchange 
can  never  vary  for  any  length  of  time  beyond  the  limits  defined  by 
the  Committee  has  been,  and  is,  the  opinion  of  the  ablest  practical 
men. 

That  the  price  of  bullion  cannot  long  continue  with  a  sound 
system  of  currency,  above  the  Mint  price,  has  received  full  con¬ 
firmation  from  the  same  quarter,  and  the  proposition  now  under 
discussion  is  not  without  the  same  sanction.  Mr  Huskisson  has 
already  availed  himself  of  the  authority  of  the  Governor  of  the 
Bank  for  its  truth,  who  declared  in  his  evidence  to  the  Committee, 
page  127,  “The  country  banks,  by  not  regulating  their  issues  on 
the  principle  of  the  Bank  of  England,  might  send  forth  a  super¬ 
abundance  of  their  notes ;  but  this  excess,  in  my  opinion,  would  no 
sooner  exist  in  any  material  degree,  than  it  would  be  corrected  by 
its  own  operation,  for  the  holders  of  such  paper  would  immediately 
return  it  to  the  issuers,  when  they  found  that  in  consequence  of  the 
over  issue  its  value  was  reduced,  or  likely  to  be  reduced,  below  par ; 
thus,  though  the  balance  might  be  slightly  and  transiently  disturbed, 
no  considerable  or  permanent  over-issue  could  possibly  take  place, 
as  from  the  nature  of  things  the  amount  of  bank  notes  in  circulation 
must  always  find  its  level  in  the  public  wants.”  Mr  Gilchrist  of 
the  Bank  of  Scotland,  stated  to  the  Committee,  that  “  If  the  Bank 
of  England  were  to  restrict  their  issues,  of  course  the  Scotch  banks 
would  find  it  necessary  to  diminish  theirs.”  “The  issues  of  the 
Bank  of  England,”  he  observed,  “  operate  upon  the  issues  of  the  I 
banks  of  Scotland  in  this  manner.  If  the  banks  of  Scotland  issue 


ON  REPORT  OF  BULLION  COMMITTEE. 


319 


more  than  they  ought  to  do  in  proportion  to  the  issues  of  the  Bank 
of  England,  they  would  be  called  upon  to  draw  bills  upon  London 
at  a  lower  rate  of  exchange.”  (Page  114,  App.)  Mr  Thompson, 
a  country  banker,  and  a  member  of  the  Committee,  was  asked, 

“  By  what  criterion  do  the  country  banks  now  regulate  their  issues 
of  paper?”- — Ans.  “  By  the  plenty  or  scarcity  of  bank  notes.” 

“  Then  their  issues  bear  a  proportion  to  the  issues  of  the  Bank  ?” 

— Ans.  “  In  my  opinion  they  do.” 

“  The  Committee,”  Mr  Bosanquct  observes,  “  has  not  defined 
the  sense  in  which  they  use  the  term  excess  of  currency  ;  I,  there¬ 
fore,”  he  continues,  “suppose  it  to  be  used  in  the  Report  in  the 
sense  in  which  it  is  used  by  Dr  Smith,  as  denoting  a  quantity 
greater  than  the  circulation  of  the  country  can  easily  absorb  or 
employ.”  And  in  another  place,  “  As  the  fact  is  not  apparent ,  at 
least  (I  mean  that  there  is  more  paper  than  the  country  can  easily 
absorb  and  employ)  the  onus  probandi  seems  to  lie  on  the  Com¬ 
mittee.” 

This  is  not  the  sense  in  which  I  consider  the  Committee  to  use 
the  word  excess.  In  that  sense  there  can  be  no  excess  whilst  the 
Bank  does  not  pay  in  specie,  because  the  commerce  of  the  country 
can  easily  employ  and  absorb  any  sum  which  the  Bank  may  send 
into  circulation.  It  is  from  so  understanding  the  word  excess  that 
Mr  Bosanquet  thinks  the  circulation  cannot  be  excessive,  because 
the  commerce  of  the  country  could  not  easily  employ  it.  In  pro¬ 
portion  as  the  pound  sterling  becomes  depreciated  will  the  want  of 
the  nominal  amount  of  pounds  increase,  and  no  part  of  the  larger 
sum  will  be  excessive,  more  than  the  smaller  sum  was  before.  /By 
excess,  then,  the  Committee  must  mean  the  difference  in  amount  of  ^ 
circulation  between  the  sum  actually  employed,  and  that  sum 
which  would  be  employed  if  the  pound  sterling  were  to  regain  its 
bullion  value.^  This  is  a  distinction  of  more  consequence  than  at 
first  sight  appears,  and  Mr  Bosanquet  was  well  aware  that  it  was 
in  this  sense  that  it  was  used  by  me.  He  has  been  so  obliging  as 
to  express  my  meaning  in  a  passage  where  it  appeared  obscure  ;  he 
has  done  it  most  ably,  and  completely  understood  the  sense  in 
which  I  used  the  words  an  excessive  circulation.  He  observes  upon 
the  passage,  page  8G,  “  If  this  interpretation  be  adopted,  it  will  be 
nearly  useless  to  search  for,  and  inquire  after,  excess  of  paper  as  a 
fact ;  we  must  be  content  to  admit  proof  of  its  existence  from  its 
effects,  and  our  attention  must  be  directed  to  ascertain  depreciation, 
or  an  increased  price  of  commodities,  solely  arising  out  of,  and 
occasioned  by,  the  increased  amount  of  the  circulating  medium.” 

I  do  most  unequivocally  admit,  that  whilst  the  high  price  of  bullion 
and  the  low  exchanges  continue,  and  whilst  our  gold  is  unde¬ 
based,  it  would  to  me  be  no  proof  of  our  currency  not  being 
depreciated  if  there  were  only  5  millions  of  bank  notes  in  circulation. 
When  we  speak,  therefore,  of  an  excess  of  bank  notes,  we  mean 
that  portion  of  the  amount  of  the  issues  of  the  Bank,  which  can  now 


350 


REPLY  TO  MU  BOSANQUET’S  OBSERVATIONS 


circulate,  but  could  not,  if  the  currency  were  of  its  bullion  value. 
When  we  speak  of  an  excess  of  country  currency,  we  mean  a 
portion  of  the  amount  of  the  country  bank  notes,  which  cannot  be 
absorbed  in  the  circulation,  because  they  are  exchangeable  for,  and 
are  depreciated  below,  the  value  of  bank  notes. 

This  distinction  appears  to  me  to  be  an  answer  to  Mr  Bosanquet’s 
objection,  where  he  says,  “but  does  it  follow  that  the  country  bank 
paper,  if  issued  to  excess,  will  not  be  checked,  because  there  is 
already  more  bank  paper  in  circulation  than  the  country  can  absorb 
and  employ?  If  it  be  admitted,  and  how  can  it  be  denied?  that 
the  price  of  commodities  must  everywhere  rise  or  fall  in  proportion 
to  the  increase  or  diminution  of  the  money  which  circulates  them; 
must  not  an  increase  of  London  money  increase  the  prices  of 
commodities  in  London  only,  unless  a  part  of  that  money  can  be 
employed  in  the  country  circulation  ?  and,  on  the  contrary,  must 
not  the  same  rise  take  place  in  the  country  [trices  only  if  the  country 
currency  be  increased,  and  if  it  be  not  convertible  into  London 
currenc3r ;  or  cannot  circulate  in  London  ?  If  the  case  put  by  Mr 
Bosanquet  be  supposed  possible,  that  the  London  currency  only 
should  be  increased,  and  that  London  bank  notes  were  not  current 
in  the  country,  then  we  should  have  an  exchange  with  the  country 
in  the  same  manner  as  we  have  with  Hamburgh  or  France,  and 
that  exchange  would  show  that  London  paper  was,  on  a  comparison 
with  country  paper,  depreciated. 

If  each  of  the  country  banks  were  protected  by  a  restriction  act 
from  paying  their  notes  in  any  other  medium  than  their  own  paper, 
and  if  these  notes  were  each  confined  to  the  circulation  of  their 
particular  districts,  they  would  each  be  depreciated  on  a  comparison 
with  bullion,  in  proportion  as  their  amount  exceeded  the  amount  of 
money  of  bullion  value  which  would  have  circulated  in  those  districts 
if  they  had  not  been  protected  by  such  an  act.  The  notes  of  one 
bank  might  be  depreciated  5  per  cent.,  of  another  10,  another  20, 
and  so  on.  The  restriction  bill  being  confined  to  the  Bank  of  England 
alone,  and  all  other  notes  being  convertible  into  their  notes,  country 
notes  can  never  be  issued  in  a  greater  proportion  than  those  of  the 
London  Bank.  Mr  Bosanquet  thinks,  “  1  was  bound  to  show  that 
some  physical  impossibility  obstructs  the  increase  of  bank  notes  at 
the  expense  of  country  notes,  and  vice  versa ,  before  I  assume  that 
an  increase  of  bank  notes  must  produce  an  increase  of  country 
notes.” 

From  what  I  have  already  said,  I  think  it  will  appear  that,  unless 
London  notes  are  employed  in  the  circulation  of  places  where  they 
were  not  before  admitted,  there  is,  if  not  a  physical,  at  least 
an  absolute  impossibility,  that  an  increase  of  Bank  of  England  notes 
should  not  either  be  followed  by  an  increase  of  country  bank  notes, 
or  by  a  depreciation  in  the  value  of  the  London  notes  as  compared 
with  the  country  notes. 

But  how  is  this  effected  ?  How  do  the  issues  of  the  Bank  produce 


ON  REPORT  OF  BULLION  COMMITTEE. 


351 

an  increase  in  the  country  circulation  ?  Mr  Gilchrist  has  informed 
us.  Reverse  the  case  which  he  has  supposed,  and  it  would  stand 
thus  : — If  the  Bank  of  England  increase  their  issues,  the  country 
banks  might  increase  theirs  :  the  prices  of  commodities  being  raised 
in  London,  whilst  those  of  the  country  continued  as  before,  money 
would  be  wanted  in  the  country  to  purchase  in  the  cheaper  market; 
bills  would  be  demanded  for  that  purpose  upon  the  country,  which 
would  therefore  sell  at  a  premium,  or,  in  other  words,  bank  notes 
would  be  depreciated  below  the  value  of  the  country  currency. 
Such  demand  would  cease  as  soon  as  the  country  currency  were 
either  brought  up  to  the  level  of  the  London  currency,  or  the 
London  currency  reduced  to  the  level  of  the  country  currency. 

I  should  not  have  thought  that  a  principle  so  clear  could  have 
been  questioned  :  the  value  of  our  gold  currency  formerly  regulated 
the  value  of  a  pound  sterling  all  over  England.  If  gold  became 
abundant  from  the  discovery  of  new  mines,  and  more  money  were 
therefore  employed  in  the  circulation  of  London,  a  proportionate 
increase  must  necessarily  have  taken  place  in  the  country  to  preserve 
the  equality  of  prices.  Bank  notes  perform  now  the  same  office ; 
and  if  they  be  increased,  the  country  currency  must  either  partake 
in  the  use  of  the  additional  quantity,  or  the  country  banks  must 
make  a  proportional  increase  to  their  issues.  It  is  not  difficult, 
under  such  circumstances,  to  determine  what  will  be  the  choice  ot 
the  country  banks. 

The  Committee  having  stated,  that  “  If  an  excess  of  paper  be 
issued  in  a  country  district,  while  the  London  circulation  does  not 
exceed  its  due  proportion,  there  will  be  a  local  rise  in  prices  in 
that  country  district,  but  prices  in  London  will  remain  as  before  ; 
that  those  who  have  the  country  paper  will  prefer  buying  in  London, 
where  things  are  cheaper,  and  will  therefore  return  that  country 
paper  upon  the  banker  who  issued  it,  and  will  demand  of  him  Bank 
of  England  notes,  or  bills  upon  London  ;  and  that  thus  the  excess 
of  country  paper  being  returned  upon  the  issuers  for  Bank  of  England 
paper,  the  quantity  of  the  latter  necessarily  and  effectually  limits  the 
quantity  of  the  former.” 

Mr  Bosanquet  asks,  “  Does  this  follow  as  a  consequence?  Ad¬ 
mitting  the  accuracy  of  the  reasoning,  under  the  supposition  that 
the  country  notes  were  actually  paid  in  bank  notes,  does  it  apply 
under  the  admission  that  they  are  paid  by  bills  on  London,  since, 
as  we  have  already  shown,  the  payment  of  these  has  very  little 
reference  to  bank  notes  ?”  Most  certainly  it  does.  Suppose  the 
excess  of  country  paper  to  be  1000/.,  and  in  consequence  1000/. 
in  Bank  of  England  notes  is  demanded  of  the  issuer,  and  sent  up  to 
London  for  the  purchase  of  goods,  will  not  1000/.  be  added  to  the 
London  circulation,  whilst  that  of  the  country  is  diminished  1000/. 
Now,  suppose  that  instead  of  a  Bank  of  England  note  of  1000/.  a 
bill  on  London  is  given  to  the  holder  of  the  country  note,  this  will 
as  sufficiently  answer  his  purpose  of  making  a  purchase  in  London  ; 


REPLY  TO  MR  BOSANQUET'S  OBSERVATIONS 


352 

but  as  a  bill  is  only  an  order  to  A  in  London  to  pay  to  B  in  London, 
the  London  currency  will  remain  as  before,  but  the  country  currency 
will  be  reduced  1000/. 

Now,  the  only  difference  in  the  two  cases  is  this,  that  in  the 
former  1000/.  was  added  to  the  London  circulation,  in  the  latter  it 
continued  at  the  same  amount.  But  will  not  the  country  banker, 
having  by  the  payment  of  the  1000/.  Bank  of  England  note  di¬ 
minished  that  deposit,  which  he  thinks  it  necessary  for  the  safety  of 
his  establishment  to  have  by  him,  give  directions  to  Ids  correspon¬ 
dent,  either  by  the  sale  of  an  exchequer  bill,  or  in  any  other  way 
that  might  be  agreed  upon,  to  send  him  Bank  of  England  notes  to 
the  amount  of  1000/.  ? 

“  If  things  are  cheaper  in  Liverpool  than  in  London,  I  shall 
prefer  buying  there ;  and  if  I  have  too  many  bank  notes,  I  shall 
send  them  to  Liverpool  in  payment,” — provided  they  can  circulate 
there.  If  they  can,  Liverpool  will  partake  with  London  in  the 
increase  of  circulation ;  but  it  is  not  improbable  that  a  Liverpool 
banker  will  find  an  opportunity  of  persuading  the  people  of  Liver¬ 
pool  that  his  note  will  answer  their  purposes  as  well  as  the  Bank 
of  England  note;*  he  will,  therefore,  possess  himself  of  it  for  one 
of  his  own,  and  will  send  it  to  London,  thus  will  the  circulation  of 
Liverpool  be  increased  by  the  issues  of  the  Bank  of  England  ;  and 
thus  Mr  Bosanquet  is  mistaken,  when  he  observes  that  “  they  may 
restrict,  but  can  never  augment,  one  shilling  in  the  circulation  of 
the  Liverpool  banks.”  The  Committee  having  “  assumed  as  an 
axiom,  that  country  bank  paper  is  a  superstructure  raised  on  the 
foundation  of  the  paper  of  the  Bank  of  England,”  Mr  Bosanquet 
asks  where  they  have  learned  this?  “They  learned  from  Mr 
Stuckey,”  he  continues,  “  a  considerable  and  experienced  banker 
in  Somersetshire,  that  his  houses  regulate  their  issues  by  the  assets 
they  have  in  London  to  pay  them,  consisting  of  stock,  exchequer 
bills,  and  other  convertible  securities,  without  much  reference  to 
the  quantity  of  Bank  of  England  notes  or  specie  which  they  have, 
although  they  always  keep  a  quantity  of  both  to  pay  occasional 
demands.  What  is  there  in  this  evidence  to  sanction  the  opinion, 
that  bank  notes  either  generate  or  limit  country  notes  ?” 

It  may,  I  think,  be  shown,  that  the  increased  issues  of  the  Bank 
would  induce  Mr  Stuckey,  or  any  other  country  banker,  to  increase 
the  amount  of  his  issues,  although  he  kept  precisely  the  securities 
which  he  has  enumerated.  There  would  be  such  a  demand  for 
country  notes,  in  consequence  of  the  alteration  of  prices  in  London, 
that  a  country  banker  would  be  enabled  to  obtain  bills  iqion  London 
in  return  for  his  notes.  With  the  produce  of  the  bills  he  might 
possess  himself  of  a  larger  sum  of  stock,  exchequer  bills,  &c.,  the 

*  The  Committee  asked  Mr  Stuckey,  “  Is  it  not  your  interest  as  a  banker  to  check 
the  circulation  of  Bank  of  England  notes ;  and  with  that  view  do  you  not  remit  to 
London  such  Bank  of  England  notes  as  you  may  receive  beyond  the  amount  which 
you  may  think  it  prudent  to  keep  as  a  deposit  in  vour  coffers  ?”  A  ns.  Unquestionably. 


ON  REPORT  OF  BULLION  COMMITTEE. 


353 


foundation  being  thus  increased,  the  superstructure  might  be  further 
raised. 

The  Committee  could  not  have  supposed  that  the  Scotch  Bank 
in  the  year  1763,  when  they  reduced  their  circulation  by  giving 
bills  at  40  days  upon  London,  actually  deposited  bank  notes,  in 
the  first  instance,  in  the  hands  of  their  London  correspondents. 
They  might,  if  such  were  the  case,  have  redeemed  their  notes  at 
once  with  bank  notes  in  Scotland.  No  ;  the  Scotch  Bank  were 
situated  as  Mr  Stuckey  describes  ;  they  had  securities  of  some  sort 
in  London,  which  they  authorised  their  correspondents  to  turn  into 
money  in  time  to  pay  their  bills.  There  was  a  transfer  of  money 
from  A  to  B  in  London,  and  the  Scotch  note  was  withdrawn. 


7. 


354 


REPLY  TO  MR  BOSANQUET’S  OBSERVATIONS. 


CHAPTER  VIII. 


MR  BOSANQUET’S  OPINION — THAT  YEARS  OF  SCARCITY  AND  TAXES 

HAVE  BEEN  THE  SOLE  CAUSE  OF  THE  RISE  OF  PRICES,  EXCES¬ 
SIVE  CIRCULATION  NO  CAUSE — CONSIDERED. 

Mr  Bosanquet,  after  having  shown,  as  he  imagines,  the  insuffi¬ 
ciency  of  the  arguments  of  the  Committee,  to  prove  that  the  Bank 
circulation  is  excessive,  brings  forward  positive  arguments  to  prove 
that  it  is  not.  The  ground  of  these  arguments  is,  the  cause  of  an 
advance  of  prices  which  arises  from  years  of  scarcity,  and  increased 
taxation.  He  has  quoted  a  passage  from  Dr  Smith  in  support  of 
this  opinion,  which  I  regard  as  in  favour  of  the  opinion  which  I 
hold  on  that  subject. 

u  A  prince,”  says  Dr  Smith,  “  who  should  enact  that  a  certain 
proportion  of  his  taxes  should  be  paid  in  a  paper  money  of  any 
kind,  might  thereby  give  a  certain  value  to  this  paper  money,  even 
though  the  time  of  its  final  discharge  and  redemption  should 
depend  altogether  on  the  will  of  the  prince.  If  the  Bank  which 
issued  this  paper  were  careful  to  keep  the  quantity  of  it  always 
somewhat  below  what  could  easily  be  employed  in  this  manner,  the 
demand  for  it  might  be  such  as  even  to  make  it  bear  a  premium, 
or  sell  for  somewhat  more  in  the  market  than  the  quantity  of  gold 
and  silver  for  which  it  was  issued.” 

Now,  asks  Mr  Bosanquet,  as  the  annual  amount  of  taxes  far 
exceeds  the  amount  of  bank  notes,  how  can  paper  according  to  this 
principle  be  depreciated  ?  But  where  does  Dr  Smith  talk  of  the 
annual  amount  of  taxes  ?  It  might  as  fairly  be  contended  that  the 
comparison  of  the  amount  of  paper  should  be  made  with  the 
amount  of  two  or  three  years’  taxes.  I  understand  Dr  Smith  to 
mean,  that  if  the  quantity  of  paper  does  not  exceed  that  amount, 
which  can  be  wholly  and  solely  employed  in  the  payment  of  taxes, 
it  will  not  be  depreciated ;  he  never  could  have  maintained  so 
extravagant  a  proposition  as  that  which  Mr  Bosanquet  ascribes  to 
him.  To  try  our  paper  circulation  by  this  rule  of  Dr  Smith,  it 
should  be  proved  that  the  daily  payment  of  taxes  is  equal  in  amount 
to  the  whole  of  the  bank  notes  in  circulation.  According  to  Mr 
Bosanquet’s  interpretation  of  this  passage,  as  the  amount  of  the 
total  payments  into  the  exchequer  is  76,805,440^.,  bank  notes 
cannot  become  excessive  or  depreciated  till  they  exceed  that  amount. 


ON  REPORT  OF  BULLION  COMMITTEE. 


355 


Who,  on  reading  the  passage,  can  believe  that  such  was  the  fair 
meaning  of  Dr  Smith’s  words  ? 

When  Mr  Bosanquet  talked  of  a  premium  having  been  given  for 
bank  notes,  I  conceived  he  meant  a  premium  in  gold  or  in  silver; 
I  can  have  no  other  idea  of  a  premium  :  but  it  seems  Mr  Bosanquet 
meant  that  a  premium  was  given  for  them  in  paper  more  depre¬ 
ciated  than  themselves;  in  exchequer  bills  or  banker’s  checks.  Now, 
both  of  these  securities  being  payable  in  bank  notes  at  some  future 
period,  may,  on  some  occasions,  be  less  valuable  than  the  notes 
which  are  wanted  for  immediate  use,  and  which  will  sufficiently 
account  for  the  preference.  An  assignat  at  a  discount  of  50  per 
cent,  might  have  borne  such  a  premium  as  Mr  Bosanquet  supposes. 

One  of  the  proofs  with  which  Mr  Bosanquet  has  favoured  his 
readers  of  the  very  small  increase  that  has  taken  place  in  the  actual 
amount  of  bank  notes,  compared  with  the  business  which  it  has  to 
perform,  is,  that  the  increase  in  the  amount  of  currency  since  the 
year  1793  is  3  millions,  and  the  increased  amount  of  payments  to 
Government  alone  above  GO  millions. 

In  this  calculation  the  addition  to  the  country  currency  is  wholly 
omitted.  I  shall  endeavour  presently  to  show,  that  it  does  not  by 
any  means  necessarily  follow  that  this  enormous  increase  in  the 
amount  of  taxes  should  have  made  any  increase  of  circulation  ne¬ 
cessary,  unless  during  the  same  time  there  had  been  an  increase  of 
commerce  and  trade. 

At  present  it  will  be  sufficient  for  me  to  remark,  that  had  Mr 
Bosanquet  made  a  comparative  statement  from  the  year  1793  to 
1797,  he  would  have  possibly  seen  reason  to  doubt  the  accuracy  of 
his  theory  on  this  subject.  During  those  four  years  there  must 
have  been  a  considerable  addition  to  the  taxes  ;  and,  therefore,  on 
Mr  Bosanquet’s  principles,  there  should  also  have  been  an  addition 
to  the  circulating  medium,  which  does  not  appear  to  be  the  fact. 
It  is  not  probable  that  any  very  great  addition  was  made  to  the 
amount  of  the  coin  in  circulation  ;  on  the  contrary,  from  the  very 
great  coinage  in  1797  and  1798,  the  metallic  currency  must,  in 
1797,  have  been  at  an  unusually  low  level.  And  it  appears  from 
the  account  delivered  in  to  the  Lords’  G'ommittee,  that  the  amount 
of  bank  notes  in  circulation 

In  the  year  1793  amounted  to  .  .  L.  11, 451, 180 

...  1796  it  varied  from  .  .  10,713,460 

to  9,204,500 

and  in  1797  the  general  average,  even  after  the  restriction,  did  not 
exceed  the  amount  of  1793. 

The  amount  of  bank  notes  in  circulation  in  1803  was  nearly  18 
millions.  In  1808  it  was  not  more;  and  yet  no  one  Mill  deny  that 
in  those  five  years  our  taxes  and  expenses  must  have  been  greatly 
augmented.  Thus,  then,  it  appears  that  considerable  additions  may 
be  made  to  the  taxes  of  a  country  n  ithout  a  corresponding  increase 
in  its  circulating  medium. 


35G  BEPLY  TO  ME  BOSANQUETS  OBSERVATIONS 

The  Committee  is  charged  by  Mr  Bosanquet  with  not  having 
sufficiently  considered  the  effect  of  taxation  on  the  prices  of  com¬ 
modities  ;  and  it  is  implied  in  that  accusation,  that  they  have  exclu¬ 
sively  attributed  the  rise  in  the  prices  of  commodities  to  the  depre¬ 
ciation  of  the  currency.  The  Committee  would  indeed  have  been 
highly  deserving  of  censure,  if  they  had  held  out  hopes  to  the 
people  of  this  country  that  the  reformation  of  the  currency  could 
possibly  reduce  the  prices  of  commodities  to  that  level  at  which 
they  were  previously  to  the  restriction  bill.  The  effect  produced 
on  prices  by  the  depreciation  has  been  most  accurately  defined,  and 
amounts  to  the  difference  between  the  market  and  the  Mint  price 
of  gold.  An  ounce  of  gold  coin  cannot  be  of  less  value,  the  Com¬ 
mittee  say*  than  an  ounce  of  gold  bullion  of  the  same  standard ;  a 
purchaser  of  corn,  therefore,  is  entitled  to  as  much  of  that  commo¬ 
dity  for  an  ounce  of  gold  coin,  or  3/.  17s.  lffkb,  as  can  be  obtained 
for  an  ounce  of  gold  bullion.  Now,  as  4/.  1:2s.  of  paper  currency  is 
of  no  more  value  than  an  ounce  of  gold  bullion,  prices  are  actually 
raised  to  the  purchaser  18  percent.,  in  consequence  of  his  purchase 
being  made  with  paper  instead  of  coin  of  its  bullion  value.  Eighteen 
per  cent,  is,  therefore,  equal  to  the  rise  in  the  price  of  commodities, 
occasioned  by  the  depreciation  of  paper.  All  above  such  rise  may 
be  either  traced  to  the  effects  of  taxation,  to  the  increased  scarcity 
of  the  commodity,  or  to  any  other  cause  which  may  appear  satis¬ 
factory  to  those  who  take  pleasure  in  such  inquiries. 

The  theory  which  Mr  Bosanquet  has  advanced  with  respect  to 
taxation,  and  the  effects  which  it  produces  on  the  amount  of  circu¬ 
lating  medium,  is  exceedingly  curious,  and  is  a  proof  that  even 
practical  men  are  sometimes  tempted  to  wander  from  the  sober 
paths  of  practice  and  experience,  to  indulge  in  speculations  the 
most  wild,  and  dreams  the  most  chimerical, 

Mr  Bosanquet  observes,  there  are  two  causes  of  the  augmentation 
of  prices  in  Great  Britain  since  the  date  of  the  restriction  bill. 
1st,  “The  altered  state  of  the  corn  trade,  and  the  scarcity  arising 
out  of  it,  in  1800  and  1801.”  2dly,  “  The  increase  of  taxes  since 
the  commencement  of  the  war,  in  1793.” 

That  the  scarcity  of  corn,  and  the  expenses  which  have  attended 
its  importation,  must  have  produced  some  rise  in  the  prices  of  com¬ 
modities,  I  do  most  readily  admit.  But  is  it  a  self-evident  proposi¬ 
tion — is  it,  as  Mr  Bosanquet  lays  it  down,  an  axiom  in  political 
economy,  that  the  effect  of  taxation  is  to  raise  the  prices  of  com¬ 
modities  in  the  full  amount  of  the  taxes  levied  ?  Does  it  by  any 
means  follow,  because  taxes,  since  the  year  1793,  have  increased  to 
the  enormous  amount  of  48  millions,  that  all  that  sum  must  have 
gone  to  the  increase  of  the  prices  of  commodities,  and  that,  there¬ 
fore,  this  fact  alone  will  account  for  a  rise  of  50  per  cent,  on  the 
prices  of  1793?  Does  it  follow  that  every  person,  excepting  the 
stockholder,  has  the  power  of  indemnifying  himself  for  the  taxes 
which  he  pays  ? 


ON  REFORT  OF  BULLION  COMMITTEE. 


357 


Does  it  make  no  difference,  for  example,  whether  the  tax  be  laid 
on  consumable  commodities,  or  whether  it  be  such  a  tax  as  an 
income  tax,  assessed  taxes,  and  twenty  others  that  may  be  named? 
Do  they  all  tend  to  raise  the  prices  of  commodities  ?  And  is  every 
contributor  but  the  stockholder  enabled  to  rid  himself  of  the  burthen? 
If  this  argument  were  correct,  it  would  appear  that  the  whole  weight 
of  taxation  falls  exclusively  on  the  stockholders ;  that  the  whole 
annual  augmentation  since  1793,  amounting  now  to  53  millions, 
must  have  come  from  their  pockets.  Their  taxes  must  at  this  rate 
have  exceeded  their  income,  because  they  exceeded  the  interest  of 
the  national  debt.  This  I  do  not  consider  very  correct  doctrine  ; 
and,  if  true,  it  would  not  make  stockholders  very  much  enamoured 
with  that  species  of  property.  Wars  would,  on  such  a  principle, 
never  impoverish,  and  the  sources  of  taxation  could  never  be  ex¬ 
hausted. 

To  me,  however,  it  appears  convincingly  certain  that  neither  the 
income  tax,  the  assessed  taxes,  nor  many  others,  do  in  the  least 
affect  the  prices  of  commodities. 

Unfortunate,  indeed,  would  be  the  situation  of  the  consumer  if 
he  had  to  pay  additional  prices  for  those  commodities  which  were 
necessary  to  his  comfort,  after  his  means  of  purchasing  them  had 
been  by  the  tax  considerably  abridged. 

The  income  tax,  were  it  fairly  imposed,  would  leave  every  member 
of  the  community  in  the  same  relative  situation  in  which  it  found 
him.  Each  man’s  expenses  must  be  diminished  to  the  amount  of 
his  tax ;  and  if  the  seller  would  wish  to  relieve  himself  from  the 
burthen  of  the  tax  by  raising  the  price  of  his  commodity,  the 
buyer,  for  the  same  reason,  would  wish  to  buy  cheaper.  These 
contending  interests  would  so  exactly  counteract  each  other,  that 
prices  would  undergo  no  alteration.  The  same  observations  are. 
applicable  to  the  assessed  taxes,  and  to  all  other  taxes  which  are 
not  levied  on  commodities.  But,  if  the  tax  should  in  its  operation 
be  unequal, — if  it  should  fall  particularly  heavy  on  one  class  of 
trade,  the  profits  of  that  trade  would  be  diminished  below  the 
general  level  of  mercantile  profits,  and  those  engaged  in  it  would 
either  desert  it  for  one  moi’e  profitable,  or  they  would  raise  the  price 
of  the  commodities  in  which  they  dealt,  so  as  to  bring  it  to  produce 
the  same  rate  of  profits  as  other  trades. 

Taxes  on  commodities  would  certainly  raise  the  price  of  the 
commodity  taxed  to  the  full  amount  of  the  tax.  The  price  for  such 
commodities  may  be  considered  as  divided  into  two  portions ;  one 
portion,  its  original  and  natural  price,  and  the  other  a  tax  for  the 
liberty  of  consuming  it.  If  this  tax,  again,  were  laid  on  a  commo¬ 
dity,  the  consumption  of  which,  by  each  individual,  was  in  exact 
proportion  to  his  income,  no  other  commodity  M  ould  rise  but  the 
one  taxed ;  but  if  it  M'ere  not  in  such  proportion,  those  who  paid 
more  than  their  just  portion  would  demand  an  increased  price  for 
the  commodity  in  which  they  dealt,  and,  by  obtaining  it,  the  society 


358 


REPLY  TO  MR  BOSANQUET’s  OBSERVATIONS 


would  be  put  in  the  same  relative  situation  in  which  they  were 
before  placed. 

If,  instead  of  the  tax  being  laid  on  the  commodity,  each  individual 
were  to  pay  no  more  for  the  commodity  than  the  original  price, 
and  were  to  pay  the  amount  of  the  tax  at  once  to  Government  for 
a  license  to  consume  it,  it  would  act  precisely  as  the  assessed  taxes 
do ;  there  would  be  only  a  partial  rise  in  the  prices  of  some  com¬ 
modities  to  compensate  the  inequality  which,  in  spite  of  the  best 
wishes  of  the  legislature,  must  accompany  every  tax. 

If  this  view  of  the  effect  of  taxation  be  correct,  it  will  follow 
that  Mr  Bosanquet’s  estimate,  that  48  millions  has  been  actually 
added  to  the  prices  of  commodities  in  consequence  of  taxation  since 
the  year  1793,  and  that  such  addition  will  sufficiently  account  for 
the  rise  in  the  prices  of  commodities,  without  having  recourse  to 
the  depreciation  of  the  circulating  medium  as  the  cause,  is  a  false 
theory,  neither  supported  by  reason  nor  probability. 

From  these  statements  Mr  Bosanquet  has  deduced  another  con¬ 
sequence,  viz.  that — 

As  the  value  of  commodities  has  been  raised  48  millions  since 
1793,  and  the  circulation  only  increased  3  millions,  such  increase 
cannot  be  called  excessive.* 

Although,  in  the  preceding  statement,  I  have  conceded  to  Mr 
Bosanquet  that,  in  consequence  of  some  of  our  taxes,  the  prices  of 
commodities  will  be  increased,  it  does  not  appear  necessarily  to 
follow  that  more  money  will  be  requisite  to  circulate  them. 

That  amount  of  money  which  is  received  by  Government  in  the 
shape  of  taxes,  is  taken  from  a  fund  which  would  otherwise  have 
been  expended  on  consumable  commodities. 

In  proportion  as  the  taxes  are  great  must  the  expenses  of  the 
people  diminish.  If  my  income  amounts  to  1000/.,  and  Government 
requires  100/.  in  taxes  from  me,  I  shall  have  but  900/.  to  expend 
on  such  necessaries  and  comforts  as  are  requisite  for  the  use  of  my 
family.  If  Government  take  200/.,  I  shall  have  but  800/.  for  such 
purposes.  Now,  as  the  amount  of  money  actually  expended  by 
Government  and  by  me  cannot  exceed  1000/.,  no  additional  circu¬ 
lating  medium  would,  I  think,  be  required,  although  the  taxes  were 
50  per  cent,  of  each  man’s  income.  If  the  tax  were  laid  upon  bread, 
and,  in  consequence,  the  wages  of  labour  wei’e  raised,  the  tax  would 
eventually  fall  on  all  those  who  consumed  the  produce  of  the  labour 
of  man.  It  would  make  no  real  difference  to  these  consumers  if 
they  had  at  once  paid  the  amount  of  such  tax  into  the  exchequer, 
or  if  it  had  gone  through  the  circuitous  channel  which  it  would 
then  take. 

Nor  would  any  additional  sum  be  required.  Government  would 

*  If  we  acid  to  these  3  millions  the  increase  in  the  country  circulation,  and  bear  in 
mind  the  economy  in  the  use  of  circulating  medium,  so  ably  and  so  clearly  explained 
by  Mr  Bosanquet,  it  would  appear  to  me  that,  granting  all  the  facts  for  which  Mr 
Bosanquet  contends,  the  circulating  medium  has  increased  in  an  undue  proportion. 


ON  REPORT  OF  BULLION  COMMITTEE. 


359 


'oc  in  the  daily  receipt  of  a  portion  of  the  taxes,  whether  it  was  paid 
to  the  exciseman  or  to  the  tax-gatherer,  and  their  expenses  in  the 
one  case  would  be  precisely  the  same  as  in  the  other.  Whatever 
the  Government  expended  would  cause  a  diminished  expenditure 
in  the  people  to  the  same  amount :  the  same  amount  of  commodities 
would  be  circulated,  and  the  same  money  would  be  adequate  to 
their  circulation. 

This  is  on  the  supposition  that  the  people  were  sufficiently 
prudent  or  sufficiently  rich  to  pay  all  the  taxes  from  their  annual 
income,  and  were  not  tempted  or  compelled  to  diminish  their 
capital  to  satisfy  the  calls  of  Government.  If  capital  were,  however, 
diminished,  the  aggregate  amount  of  productions  would  also 
diminish  ;  and  if  the  money  which  was  before  necessary  for  their 
circulation  were  to  continue  of  the  same  amount,  it  would  bear  a 
larger  proportion  to  the  goods,  and  it  might  therefore  be  expected 
that  commodities  would  rise ;  but  we  must  not  forget  that  the 
amount  of  money  in  a  country  is  regulated  by  its  value,  and  as  its 
value  would  in  this  case  be  diminished,  it  would  become  relatively 
excessive  to  the  money  of  other  countries,  and  the  excess  would 
therefore  be  exported. 

When  we  talk  of  a  scarcity  of  corn,  and  a  consequent  increase  of 
price,  it  is  naturally  concluded,  because  its  value  is  doubled,  that 
double  the  value  of  money  will  be  necessary  to  circulate  it,  but  this 
is  by  no  means  obvious  or  necessary.  If  double  the  money  be 
necessary,  there  should  be  an  equal  quantity  of  corn  at  double  the 
usual  price, — but  it  is  because  there  is  a  diminished  quantity  of 
corn  that  its  price  is  doubled. 

If  the  commerce  of  a  country  increases,  that  is  to  say,  if  by  its 
savings  it  is  enabled  to  add  to  its  capital,  such  country  will  require 
an  additional  amount  of  circulating  medium  ;  but,  under  all  cir¬ 
cumstances,  the  currency  ought  to  retain  its  bullion  value ;  that  is 
the  only  sure  test  by  which  we  may  know  that  it  is  not  excessive 


REPLY  TO  MR  BOSANQUETS  OBSERVATIONS 


3  GO 


CHAPTER  IX. 


MR  BOSANQUET’S  OPINION,  1  HAT  EVIL  WOULD  RESULT  FROM  TIIE 
RESUMPTION  OF  CASH  PAYMENTS,  CONSIDERED 

To  conclude,  Mr  Bosanquet  is  persuaded  that  much  evil  will  ensue 
from  the  resumption  of  cash  payments,  and  he  cannot  anticipate 
any  improvement  in  the  course  of  exchange,  or  any  fall  in  the  price 
of  bullion  from  a  reduction  of  the  circulation,  unless  our  imports  are 
diminished  and  our  exports  increased. 

To  me,  however,  it  appears  perfectly  clear,  that  a  reduction  of 
bank  notes  would  lower  the  price  of  bullion  and  improve  the 
■exchange,  without  in  the  least  disturbing  the  regularity  of  our 
present  exports  and  imports.  It  would  neither  enable  us  to  export 
or  import  gold  in  any  way  different  to  what  is  now  actually  taking 
place.  Our  transactions  with  foreigners  would  be  precisely  the 
same,  we  should  possess  only  a  more  valuable  money  of  the  same 
name  ;  and  instead  of  being  credited  by  Hamburgh  for  a  depreciated 
pound  sterling,  which  will  only  purchase  104  grains  of  gold,  at 
the  rate  of  28  Flemish  schillings,  we  should,  by  restoring  our  pound 
sterling  to  its  true  bullion  value,  viz.  123  grains,  have  a  credit  at 
the  rate  of  34  schillings.  The  difference,  however,  of  6  schillings, 
which  would  thus  appear  in  our  favour,  would  be  an  advantage  in 
name  and  appearance  solely.  No  mistake  would  be  greater  than 
to  suppose  there  was  in  it  any  real  advantage. 

If,  by  a  reduction  of  bank  notes,  they  were  so  raised  in  value  as 
to  be  above  the  value  of  gold  bullion,  we  should  then  interfere  with 
the  real  course  of  exchange ;  we  should  disturb  the  present  equi¬ 
librium  of  imports  and  exports  ;  and  we  should  cause  an  importation 
of  bullion,  or,  in  the  language  of  merchants,  a  favourable  balance  of 
trade. 

If  Mr  Bosanquet’s  view  of  our  affairs  were  indeed  correct,  gloomy 
would  be  our  prospects.  Obliged  to  support  a  great  foreign 
expenditure,  “  to  import  articles  with  which  we  cannot  dispense,” 
and  in  return  for  which  nothing  but  gold  will  be  accepted,  we 
might  almost  calculate  the  period  at  which  the  contest  must 
terminate  from  a  want  of  this  most  essential  commodity.  For  a 
balance  of  payments  so  enormous  as  he  calculates,  gold  could  not 
be  found  in  this  country  fbr  one  twelvemonth ;  and  if  our  goods 
can  nowhere  purchase  it,  how  hopeless  must  be  our  condition  ! 


ON  REPOHT  OF  BULLION  COMMITTEE. 


361 


For  my  part,  however,  I  have  no  such  apprehensions.  I  am 
persuaded  that  our  foreign  expenditure  is  neither  paid  with  gold 
nor  with  bills  of  exchange, — that  it  must  eventually  be  discharged 
with  the  produce  of  the  labour  and  industry  of  our  people. 

It  is  only  to  a  blind  perseverance  in  our  present  system  of 
circulation  that  I  look  with  alarm, — a  system  which  is  gradually 
undermining  our  resources,  and  the  inconveniences  and  evils  of 
which,  in  the  language  of  the  Committee,  “  if  not  checked,  must  at 
no  great  distance  of  time  work  a  practical  conviction  upon  the 
minds  of  all  those  who  may  still  doubt  their  existence  ;  but  even 
if  their  progressive  increase  were  less  probable,  the  integrity  and 
honour  of  Parliament  are  concerned  not  to  authorise  longer  than  is 
required  by  imperious  necessity  the  continuance  in  this  great  com¬ 
mercial  country  of  a  system  of  circulation  in  which  that  natural 
check  or  control  is  absent,  which  maintains  the  value  of  money, 
and,  by  the  permanency  of  that  common  standard  of  value,  secures 
the  substantial  justice  and  faith  of  monied  contracts  and  obligations 
between  man  and  man.” 

May  we  be  permitted  to  hope,  that  what  an  enlightened  Committee 
has  so  happily  begun  is  a  pledge  of  what  will  be  accomplished  by 
the  wisdom  of  Parliament  ? 


APPENDIX. 


After  the  preceding  sheets  were  sent  to  the  press,  I  read  the  supplementary  obser¬ 
vations  of  Mr  Bosanquet,  annexed  to  the  second  edition  of  his  pamphlet.  I  shall 
have  but  few  remarks  to  make  on  them. 

1st,  From  what  I  have  already  said,  it  may  be  seen  that  I  deny  the  accuracy  of  all 
Mr  Bosanquet’s  calculations  concerning  the  exchange  with  Hamburgh.  Those  cal¬ 
culations  are  made  on  the  assumption  of  a  fixed  invariable  par,  whilst  the  true  par, 
on  which  they  should  have  been  made,  is  subject  to  all  the  variations  to  which  the 
relative  value  of  gold  and  silver  is  exposed.  These  two  metals  having  varied  no  less 
since  the  year  1801  than  from  6j  per  cent,.,  under  the  Mint  proportions,  to  9  per  cent, 
above  those  proportions ;  calculations  made  on  such  a  principle  may  involve  errors  to 
no  less  an  amount  than  1 5  j  per  cent.  2dly,  The  argument  attempted  to  be  founded 
on  the  fact  of  the  increase  or  diminution  in  the  amount  of  bank  notes  not  having 
invariably  been  accompanied  by  a  fall  or  rise  in  the  exchange,  or  by  a  rise  or  fall  in 
the  price  of  bullion,  is  of  no  avail  against  a  theory  which  admits  that  the  demand  for 
circulating  medium  is  subject  to  continual  fluctuations,  proceeding  from  an  increase 
or  decrease  in  the  amount  of  capital  and  commerce,  from  a  greater  or  less  facility 
which  at  one  period  may  be  afforded  to  payments  by  a  varying  degree  of  confidence 
and  credit,  and,  in  short,  which  supposes  that  the  same  commerce  and  payments  may 
require  very  different  amounts  of  circulating  medium.  An  amount  of  bank  notes, 
which  at  one  time  may  be  excessive,  in  the  sense  in  which  I  use  that  term,  and  which 
may  therefore  be  depreciated,  may,  at  another,  be  barely  sufficient  for  the  payments 
which  it  may  have  to  perform,  barring  the  effect  of  a  temporary  increase  in  its  value 
above  that  of  the  bullion  which  it  represents.  It  will  therefore  be  useless  to  admit  or 
to  deny  the  correctness  of  the  grounds  on  which  Mr  Bosanquet’s  calculation  of  the 
amount  of  country  paper  in  circulation  is  founded.  Those  facts  do  not,  in  my  opinion, 
bear  upon  the  subject  in  dispute.  Whether  the  paper  currency  be  25  or  100  millions, 
I  consider  it  equally  certain  that  it  is  excessive,  because  I  am  not  aware  of  any  causes 
but  excess,  or  a  want  of  confidence  in  the  issues  of  the  pniper  (which  I  am  sure  does 
not  now  exist),  which  could  produce  such  effects  as  we  have  for  a  considerable  time * 
witnessed. 

Mr  Bosanquet  has  thrown  the  inferences  which  he  wishes  to  be  drawn  from  the 
facts  he  has  newly  brought  forward  into  the  shape  of  four  problems  ;  the  solution  of 
which,  upon  the  principles  of  the  Committee,  he  presumes  to  be  impossible.  I  hope 
I  have  already  shown  that  his  facts  fall  abundantly  short  of  proving  the  points  which 
he  makes  to  rest  upon  them,  and  I  think  the  difficulty  will  not  be  great  in  giving  him 
even  a  solution  of  his  problems  in  perfect  conformity  with  the  principles  of  the  Com¬ 
mittee. 

The  first  problem  is,  “  The  fall  of  the  exchange,  from  an  average  of  6  per  cent,  in 
favour  from  1790  to  1795,  to  3  per  cent,  below  par  in  1795  and  1796,  with  an  equal 
circulation  of  1 1  millions  of  Bank  paper,  convertible  into  specie  on  demand,  and  the 
advance  of  the  exchange  to  11  per  cent,  above  par,  on  average  in  1797  and  1798,  the 
circulation  being  increased  to  13  millions,  and  not  so  convertible.” 

The  reader  will  perceive  that  this  problem  has  already  received  its  solution  in  the 
body  of  the  work.  The  exchanges  are  not  correctly  stated,  and  no  one  denies  that 
the  exchanges  may  rise  and  fall  from  many  causes. 

*  Mr  Bosanquet  has  remarked  as  incorrect  my  having  used  the  words  “  length  of  time  ”  in  reference 
to  a  discount  on  hank  notes,  because  Mr  Musliet’s  tallies  did  not  indicate  a  very  unfavourable 
exchange  fur  more  than  a  year  before  I  wrote,  in  December  1809.  We  should  once  have  thought  a 
year  a  considerable  time ,  when  speaking  of  a  discount  on  bank  notes ;  but  as  I  have  constantly 
maintained  that  the  high  price  of  bullion  was  the  test  on  which  I  most  relied  for  the  proof  of  depre¬ 
ciation,  and  as  the  price  of  gold  has  not  been  under  the  Mint  price  for  about  ten  years,  the  correctness 
of  my  conclusion  cannot,  I  think,  on  my  principles,  be  questioned. 


REPLY  TO  MR  BOSAXQVEX’S  OBSERVATIONS 


364 


It  has  boon  proved  that  the  demand  for  gold  for  the  Mint,  and  for  silver  for  the 
East  Indies,  in  the  years  1707  and  179$,  had  its  natural  effect  on  the  exchange,  ai.u 
was  not  counteracted  by  an  extravagant  issue  of  paper  currency.  The  gold  was 
required  to  till  up  the  exhausted  coffers  of  the  Hank;  it  was  therefore  not  sent  into 
circulation  :  and  the  addition  of  9  millions  in  bank  notes  served  only  to  supplv  the 
vacuum  which  the  hoarding  of  money  had  occasioned;  so  that  there  was  no  real 
increase  to  the  circulation  of  those  years. 

'Idle  second  problem  is,  “The  fall  of  the  exchange  to  (1  per  cent,  below  par,  and  gold 
9  per  cent,  above  the  Mint  price  in  1$00  and  1$01.  the  Bank  circulation  rather  above 
IN  millions,  and  the  advance  to  3  per  cent,  above  par,  on  average  of  six  years,  from 
1$0.">  to  1  $0$.  and  gold  nearly  at  the  Mint  price,  with  an  augmented  circulation  of  17 
to  1$  millions.” 

Besides  the  effects  from  a  varying  degree  of  commerce  and  credit,  it  should  he 
recollected  that  whilst  our  circulation  consisted  partly  of  gold  and  partly  of  paper,  t  he 
effect  of  an  increased  issue  of  paper,  both  on  the  exchanges  and  the  price  of  bullion, 
w  as  corrected,  after  a  sufficient  interval,  by  the  exportation  of  the  coin.  That  resource 
has  been  for  some  time  lost  to  us. 

The  third  problem,  viz.  “  The  fall  of  the  exchange,  from  a  per  cent,  above  par,  in 
July  1$0$,  to  10  per  cent,  below  par,  in  June  1S09,  the  Bank  circulation  being  the 
same  in  both  instances  is  of  easy  solution.  I  cannot  find  the  document  from  which 
Mr  Bosanquet  has  stated  that  the  amount  of  bank  notes  was  the  same  in  July  1$0$ 
as  in  June  l  $09;  hut.  admitting  its  correctness,  are  they  fair  subjects  of  comparison  ? 
One  period  is  immediately  after  the  payment  of  the  dividends,  the  other  immediately 
before.  In  January  and  July  1$09  there  was  no  less  an  increase  in  the  amount  of 
bank  notes,  after  the  payment  of  the  dividends,  than  2,47)0,000/.,  and  in  the  January 
following.  1,878,000/. 

I  am  not  disposed  to  contend  that  the  issues  of  one  day,  or  of  one  month,  can 
produce  any  effect  on  the  foreign  exchanges ;  it  may  possibly  require  a  period  of 
more  permanent  duration  ;  an  interval  is  absolutely  necessary  before  such  effects 
would  follow.  This  is  never  considered  by  those  who  oppose  the  principles  of  the 
Committee.  They  conclude  that  those  principles  are  defective,  because  their  opera¬ 
tion  is  not  immediately  perceived.  But  what  are  the  facts  respecting  the  circulation 
of  bank  notes  in  the  years  180$  and  1809?  There  are  only  three  returns  of  their 
amount  in  the  year  ISOS  made  to  the  Bullion  Committee.  Let  us  compare  them  with 
the  returns  for  the  same  periods  in  1  $09,  and  1  think  my  readers  w  ill  agree  with  me, 
that  these  facts  will  rather  confirm  than  appear  to  be  at  variance  with  the  principles 
of  the  Committee. 


Amount  of  bank  notes 
In  ISOS. 

1  May  .  .  17,491,900 
1  August  .  17,644.670 
1  November  17,467,170 


Amount  of  bank  notes 
In  1S09. 

1  May  .  .  IS, 646, 880 
1  August  .  19.S1 1,330 
1  November  19,949,290 


As  for  the  fourth  problem,  viz.  “  The  gradually  increasing  price  of  commodities, 
during  the  American  war,  when  the  circulation  was  gold,  and  during  the  six  years 
from  1$03  to  ISOS,  when  the  exchange  was  in  favour,”  where  has  it  been  disputed 
that  there  are  not  other  causes  besides  the  depreciation  of  money  w  hich  may  account 
for  a  rise  in  the  prices  of  commodities?  The  point  for  which  I  contend  is,  that  when 
such  rise  is  accompanied  by  a  permanent  rise  in  the  price  of  that  bullion  which  is  the 
standard  of  currency,  then  to  the  amount  of  that  rise  is  the  currency  depreciated. 
During  the  American  war  the  rise  in  the  prices  of  commodities  was  not  attended  with 
anv  rise  in  the  price  of  bullion,  and  was  therefore  not  occasioned  by  a  depreciation  of 
the  currency. 

We  are  now.  for  the  first  time,  left  to  doubt  whether  the  principles  of  the  Committee, 
ajainst  which  Mr  Bosanquet  in  the  body  of  his  work  had  so  strongly  contended,  are 
really  at  variance  with  his  own.  We  are  now-  told,  not  that  the  theory  is  erroneous, 
but  -  that  the  facts  must  be  established  before  they  can  be  reasoned  upon;”  “and  that 
the  importance  of  those  facts  would  in  no  degree  be  lessened  even  by  an  unreserved 
admission  of  the  accuracy  of  the  principles  assumed.”  Does  this  declaration  accord 
with  Mr  Bosanquet’s  conclusions?  Certain  principles  are  brought  forward  by  the 
Bullion  Committee,  and  which,  if  true,  prove  the  fact  of  the  depreciation  of  the  currency. 
Your  principles  are  plausible,  and  reason  appears  to  sanction  them,  says  Mr  Bosanquet ; 
but  here  are  facts  to  prove  that  they  are  inconsistent  with  past  experience  ;  and  lie 
further  observes  from  Paley,  “  that  when  a  theorem  is  proposed  to  a  mathematician 


ON  REPORT  OF  BULLION  COMMITTEE. 


365 


!  the  first  thing  he  does  with  it  is  to  try  it  on  a  simple  case ;  if  it  produce  a  false  result, 
I  he  is  sure  there  must  he  some  error  in  the  demonstration.”  “  The  public  must  proceed 
I  in  this  way  with  the  Report,  and  submit  its  theories  to  the  test  of  fact.”  Can,  then,  Mr 
Bosanquet  be  consistent  in  contending  “  that  the  importance  of  what,  in  his  preceding 
pages,  he  had  offered  to  the  public  would  be  in  no  degree  lessened  even  by  an  unre¬ 
served  admission  of  the  accuracy  of  the  principles  assumed  ?” 

If  the  theory  of  the  Committee  is  allowed  to  be  accurate  on  the  one  hand,  and  Mr 
Bosanquet’s  facts  are  accurate  on  the  other,  what  follows  ?  Either  that  Mr  Bosanquet 
agrees  with  the  Committee,  or  that  his  facts  are  totally  inapplicable  to  the  question, 
fine  other  conclusion  there  is,  but  one  which  I  have  no  intention  to  ascribe  to  Mr 
Bosanquet, — that  there  may  be  a  theory  on  the  one  side,  and  facts  on  the  other ;  Loth 
true,  and  vet  inconsistent. 

As  for  Dr  I'aley’s  test  of  trying  the  Committee’s  theory  by  a  simple  case,  Mr 
Bosanquet  might  have  tried  it  by  a  thousand,  and  would  have  found  it  accurately  to 
correspond.  Had  he  employed  his  leisure  and  ingennity  in  tracing  its  application  to 
the  thousands  of  cases  with  which  it  accords,  instead  of  hunting  for  two  or  three  cases 
seemingly  contradictory,  and  adopting  them  with  fond  credulity,  he  would  have  pro¬ 
bably  arrived  at  more  just  conclusions. 

Mr  Bosanquet  calls  in  question  the  accuracy  of  the  following  proposition  of  Mi 
Huskisson,  “  that  if  one  part  of  the  currency  of  a  country  (provided  such  currency  be 
made  either  directly  or  virtually  legal  tender  according  to  its  denomination )  be 
depreciated,  the  whole  of  that  currency,  whether  paper  or  coin,  must  be  equally 

depreciated.” 

The  fact  bronght  forward  by  Mr  Bosanquet,  that  the  “  extraordinary  depreciation 
of  the  silver  coin  in  the  reign  of  King  William  did  not  depreciate  the  gold  ;  that,  on 
the  contrary,  the  guinea,  worth  21  perfect  shillings,  passed  currently  for  30s.,”  does 
not  prove  the  principle  advanced  by  Mr  Huskisson  to  be  at  variance  with  experience, 
because  gold  was  not  then  the  current  coin  ;  it  was  not,  either  directly  or  virtually  legal 
tender ;  nor  was  it  estimated  at  a  fixed  value  by  public  authority :  it  passed  in  all 
payments  as  a  piece  of  bullion  of  known  weight  and  fineness.  If  by  law  it  could  not 
have  passed  for  more  than  2 Is.  of  the  debased  silver  currency,  it  would,  whilst  in 
the  state  of  coin,  have  been  equally  debased  with  the  21s.  for  which  it  would  have 
exchanged.  If  guineas  were  now  to  be  considered  as  a  commodity,  and  were  not  by 
law  prohibited  from  being  exported  or  melted,  they  might  pass  in  all  payments  at  24-. 
or  25s.,  whilst  the  bank  note  continued  of  its  present  value. 

Neither  is  the  following  principle  of  Mr  Huskisson,  from  which  Mr  Bosanquet 
dissents,  contrary  to  authority ,  “that  if  the  quantity  of  gold,  in  a  country  whose  cnrrency 
consists  of  gold,  should  be  increased  in  any  given  proportion,  the  quantity  of  other 
articles  and  the  demand  for  them  remaining  the  same,  the  value  of  any  given  commodity 
measured  in  the  coin  of  that  country  would  be  increased  in  the  same  proportion.”  Mr 
Huskisson  does  not  question,  as  Mr  Bosanquet  supposes,  the  truth  of  the  principle 
advanced  by  Dr  Adam  Smith,  “  that  the  increase  in  the  quantity  of  the  precious 
metals,  which  arises  in  any  country  from  an  increase  of  wealth,  has  no  tendency  to 
diminish  their  value  ■”  but  says,  that  if  the  quantity  of  the  precious  metals  increases  in 
any  country,  whilst  its  wealth  does  not  increase,  or  whilst  its  commodities  remain  the 
same  in  quantity,  then  will  the  value  of  the  gold  coin  of  such  country  diminish,  or,  in 
other  words,  goods  will  rise  in  price.  Mr  Bosanquet  himself,  in  the  argument  relating 
to  the  mine,  has  admitted  that  such  would  be  the  effect.  To  this  passage  from  Mr 
Huskisson’s  book,  however,  I  have  an  objection  to  offer,  because  he  adds,  that  an 
increase  in  the  prices  of  commodities  would  take  pdace  (page  5)  under  the  circum¬ 
stances  supposed,  “  although  no  addition  should  actually  be  made  to  the  coin  of  the 
country.”  I  hold  it  as  a  conclusion  which  will  not  admit  of  dispute,  that  if  neither 
commodities,  nor  the  demand  for  them,  nor  the  money  which  circulates  them,  suffer 
either  increase  or  diminution,  prices  mist  continue  unaltered  whatever  quantity  of 
gold  or  silver  may  exist  in  the  state  of  bullion  in  such  country.*  It  is  hardly  necessary 
to  remark,  that  the  case  is  wholly  hypothetical,  and  is,  indeed,  impossible.  There  can 
be  no  great  addition  to  the  bullion  of  a  country,  the  currency  of  which  is  of  its  standard 
value,  without  causing  an  increase  in  the  quantity  of  money. 

I  confess  I  was  not  a  little  surprised  by  the  next  point  brought  forward  by  Mr 
Bosanquet,  and  I  have  no  doubt  it  must  have  excited  equal  astonishment  in  many  of 
his  readers.  Having  contended  throughout  his  work  that  bank  notes  were  not  depre- 


•  It  is  to  r*  understood  that  I  am  supposing  no  increased  or  diminished  confidence  operating  so  as 
to  give  a  diminished  or  increased  value  to  thu  coin. 


366  REPLY  TO  MR  ROSANQUET’S  OBSERVATIONS. 

dated  as  compared  with  gold  coin,  that  the  same  rise  in  the  price  of  gold  might  have 
taken  place,  and  actually  had,  on  some  occasions,  taken  place,  whilst  our  currencv 
consisted  partly  of  gold,  and  partly  of  paper  convertible  into  gold,  at  the  will  of  the 
holder;  after  denying  that  there  was  any  point  of  contact  between  gold  for  exporta¬ 
tion  and  gold  in  coin,  and  that  it  was  for  want  of  such  contact  that  its  price  had  risen, 
we  are  now  seriously  told  by  Mr  Bosanquet  that,  “applying  to  this  subject  the  most 
approved  theories,  he  inclines  to  the  belief  that  gold,  since  the  new  system  of  the 
Bank  of  England  payments  has  been  fully  established,  has  not,  in  truth,  continued  to 
be  the  measure  of  value.  Bank  notes,”  he  maintains,  “  have,  since  1797,  unquestion¬ 
ably  become  the  measure  of  commerce,  and  the  money  of  account,  and  it  is  on  these 
grounds  that  he  considers  the  proposition  respecting  the  price  of  gold,  on  which  so 
much  reliance  is  placed,  as  one  of  those  which,  though  he  admits  the  principle,  he 
hesitates  at  the  application.”  Whether  the  Bank  Directors,  or  others  who  have  so 
confidently  asserted  that,  admitting  gold  to  be  the  standard,  its  high  price  did  not 
prove  the  depreciation  of  the  currency,  will  be  pleased  with  a  defence  on  such  prin¬ 
ciples,  which  yields  all  for  which  the  Committee  contend,  it  is  not  for  me  to  inquire. 
That  gold  is  no  longer  in  practice  the  standard  by  which  our  currency  is  regulated  is 
a  truth.  It  is  the  ground  id'  the  complaint  of  the  Committee  (and  of  all  who  have 
written  on  the  same  side)  against  the  present  system. 

The  holder  of  money  has  been  injured,  inasmuch  as  there  is  no  standard  reference 
by  which  his  property  can  be  protected.  He  has  suffered  a  loss  of  16  per  cent,  since 
1797,  aird  there  is  no  security  for  him  that  it  may  not  shortly  be  25,  30,  or  even  50 
per  cent.  more.  Who  will  consent  to  hold  money  or  securities,  the  interest  on  which 
is  payable  in  money,  on  such  terms  ?  There  is  no  sacrifice  which  a  man  holding  such 
property  should  not  make,  to  secure  to  himself  some  provision  for  the  future  whilst 
such  a  system  is  avowed.  Mr  Bosanquet  has,  in  these  few  words,  said  as  much  in 
favour  of  the  repeal  of  the  restriction  bill  as  all  the  writers,  all  the  theorists,  have 
advanced  since  the  discussion  of  this  subject  commenced.  What,  then,  does  Mr 
Bosanquet  admit  that  we  have  no  standard  because  it  is  no  longer  gold  ?  Let  us  hear 
what  he  says  :  “  If  a  pound  note  be  the  denomination,  it  will,  of  course,  be  asked  what 
is  the  standard  ? 

••  The  question  is  not  easy  of  solution.  But,  considering  the  high  proportion  which 
the  dealings  between  Government  and  the  public  bear  to  the  general  circulation,  it  is 
probable  the  standard  may  be  found  in  those  transactions ;  and  it  seems  not  more 
difficult  to  imagine  that  the  standard  value  of  a  one  pound  note  may  be  the  interest 
of  33/.  6s.  Sd. — 3  per  cent,  stock,  than  that  such  standard  has  reference  to  a  metal,  ot 
which  none  remains  in  circulation,  and  of  which  the  annual  supply,  even  as  a  eonnno- 
ditv,  does  not  amount  to  one-twentieth  part  of  the  foreign  expenses  of  Government  in 
one  year.” 

So  then  we  hare  a  standard  for  a  pound  bank  note  ;  it  is  the  interest  of  33/.  6s.  Sd. 
— 3  per  cent,  stock.  Now,  in  what  medium  is  this  interest  paid  '?  because  that  must 
be  the  standard.  The  holder  of  33/.  6s.  Sd.  stock  receives  at  the  bank  a  one  pound 
note.  Bank  notes  are,  therefore,  according  to  the  theory  of  a  practical  man,  the 
standard  by  which  alone  the  depreciation  of  bank  notes  can  be  estimated ! 

A  puncheon  of  rum  has  1 6  per  cent,  of  its  contents  taken  out,  and  water  poured  in 
for  it.  What  is  the  standard  by  which  Mr  Bosanquet  attempts  to  detect  the  adultera¬ 
tion  ?  A  sample  of  the  adulterated  liquor  taken  out  of  the  same  cask. 

We  are  next  told,  that  “  if  the  Bank  really  possess  a  large  stock  of  gold,  or  only  to 
the  extent  of  6  or  7  millions,  the  best  use  they  can  make  of  it  is  to  call  in  all  the  notes 
under  5/.,  and  not  re-issue  any  of  this  description.” 

How  could  bankers  and  manufacturers  be  enabled  to  effect  their  small  payments  if 
the  gold,  thus  partially  issued,  were  at  the  present  exchange  and  price  of  bullion  to  be 
either  exported  or  melted  ?  If  the  Bank  did  not  issue  small  notes,  and  they  could  not 
procure  guineas  for  large  ones,  they  would  be  obliged  to  cease  such  payments  altogether. 
The  more  I  have  reflected  on  this  subject,  the  more  convinced  1  am  that  the  evil 
admits  of  no  other  safe  remedy  but  a  reduction  in  the  amount  of  bank  notes. 


AN 


ESSAY 


CX  THE 


INFLUENCE  OF  A  LOW  PRICE  OF  CORN  ON  THE  PROFITS  OF  STOCK 

SHEWING  THE 


INEXPEDIENCY  OF  RESTRICTIONS  ON  IMPORTATION: 


WITH 


REMARKS  OX  MR  MALTHUS’S  TWO  LAST  PUBLICATIONS: 


“  AN  INQUIRT  INTO  THE  NATURE  AND  PROGRESS  OF  bent;”  AND  “  T1IE  GROUNDS  OF  All 
OPINION  ON  THE  POLICY  OF  RESTRICTING  THE  IMPORTATION  OF  FOREIGN  CORN.” 


SECOND  EDITION. 


LONDON : 


181o. 


— 


INTRODUCTION. 


In  treating  or.  the  subject  of  the  profits  of  capital,  it  is  necessary  to 
consider  the  principles  which  regulate  the  rise  and  fall  of  rent,  as 
rent  and  profits,  it  will  be  seen,  have  a  very  intimate  connexion 
with  each  other.  The  principles  which  regulate  rent  are  briefly 
stated  in  the  following  pages,  and  differ  in  a  very  slight  degree 
from  those  which  have  been  so  fully  and  so  ably  developed  by  Mr 
Malthus  in  his  late  excellent  publication,  to  which  I  am  very  much 
indebted.  The  consideration  of  those  principles,  together  with 
those  which  regulate  the  profit  of  stock,  have  convinced  me  of  the 
policy  of  leaving  the  importation  of  corn  unrestricted  by  law. 
From  the  general  principle  set  forth  in  all  Mr  Malthus’ s  publications, 
I  am  persuaded  that  he  holds  the  same  opinion,  as  far  as  profit  and 
wealth  are  concerned  with  the  question ;  but,  viewing,  as  he  does, 
the  danger  as  formidable  of  depending  on  foreign  supply  for  a  large 
portion  of  our  food,  he  considers  it  wise,  on  the  whole,  to  restrict 
importation.  Not  participating  with  him  in  those  fears,  and  perhaps 
estimating  the  advantages  of  a  cheap  price  of  corn  at  a  higher  value, 
I  have  come  to  a  different  conclusion.  Some  of  the  objections 
urged  in  his  last  publication — “  Grounds  of  an  Opinion,”  &c.,  I 
have  endeavoured  to  answer ;  they  appear  to  me  to  be  unconnected 
with  the  political  danger  he  apprehends,  and  to  be  inconsistent 
with  the  general  doctrines  of  the  advantages  of  a  free  trade,  which 
he  has  himself,  by  his  writings,  so  ably  contributed  to  establish. 


A  A 


ESSAY 


ON  THE 

INFLUENCE  OF  A  LOW  PRICE  OF  CORN  ON  THE  PROFITS  OF  STOCK. 


Mr  Malthus  very  correctly  defines  “  the  rent  of  land  to  be  that 
portion  of  the  value  of  the  whole  produce  which  remains  to  the 
owner,  after  all  the  outgoings  belonging  to  its  cultivation,  of 
whatever  kind,  have  been  paid,  including  the  profits  of  the  capital 
employed,  estimated  according  to  the  usual  and  ordinary  rate  of 
the  profits  of  agricultural  stock  at  the  time  being.” 

Whenever,  then,  the  usual  and  ordinary  rate  of  the  profits  of 
agricultural  stock,  and  all  the  outgoings  belonging  to  the  cultivation 
of  land,  are  together  equal  to  the  value  of  the  whole  produce,  there 
can  be  no  rent. 

And,  when  the  whole  produce  is  only  equal  in  value  to  the 
outgoings  necessary  to  cultivation,  there  can  neither  be  rent  nor 
profit. 

In  the  first  settling  of  a  country  rich  in  fertile  land,  and  which 
may  be  had  by  any  one  who  chooses  to  take  it,  the  whole  produce, 
after  deducting  the  outgoings  belonging  to  cultivation,  will  be  the 
profits  of  capital,  and  will  belong  to  the  owner  of  such  capital, 
without  any  deduction  whatever  for  rent. 

Thus,  if  the  capital  employed  by  an  individual  on  such  land  were 
of  the  value  of  200  quarters  of  wheat,  of  which  half  consisted  of 
fixed  capital,  such  as  buildings,  implements,  &c.,  and  the  other  half 
of  circulating  capital, — if,  after  replacing  the  fixed  and  circulating 
capital,  the  value  of  the  remaining  produce  were  100  quarters  of 
wheat,  or  of  equal  value  with  100  quarters  of  wheat,  the  neat  profit 
to  the  owner  of  capital  would  be  50  per  cent.,  or  100  profit 
on  200  capital. 

For  a  period  of  some  duration  the  profits  of  agricultural  stock 
might  continue  at.  the  same  rate,  because  land  equally  fertile  and 
equally  well  situated  might  be  abundant,  and,  therefore,  might  be 
cultivated  on  the  same  advantageous  terms,  in  proportion  as  the 
capital  of  the  first  and  subsequent  settlers  augmented. 

Profits  might  even  increase,  because,  the  population  increasing 
at  a  more  rapid  rate  than  capital,  wages  might  fall ;  and,  instead  of 
the  value  of  100  quarters  of  wheat  being  necessary  for  the  circu- 


372 


INFLUENCE  OF  A  LOW  FIIICE  OF  CORN 


lating  capital,  90  only  might  be  required,  in  which  case  the  profits 
of  stock  would  rise  from  50  to  57  per  cent. 

Profits  might  also  increase,  because  improvements  might  take 
place  in  agriculture,  or  in  the  implements  of  husbandry,  which  would 
augment  the  produce  with  the  same  cost  of  production. 

If  wages  rose,  or  a  worse  system  of  agriculture  were  practised, 
profits  would  again  fall. 

These  are  circumstances  which  are  more  or  less  at  all  times  in 
operation — they  may  retard  or  accelerate  the  natural  effects  of  the 
progress  of  wealth,  by  raising  or  lowering  profits — by  increasing  or 
diminishing  the  supply  of  food,  with  the  employment  of  the  same 
capital  on  the  land.* 

W  e  will,  however,  suppose  that  no  improvements  take  place  in 
agriculture,  and  that  capital  and  population  advance  in  the  proper 
proportion,  so  that  the  real  wages  of  labour  continue  uniformly  the 
same; — that  we  may  know  what  peculiar  effects  are  to  be  ascribed 
to  the  growth  of  capital,  the  increase  of  population,  and  the  exten¬ 
sion  of  cultivation,  to  the  more  remote  and  less  fertile  land. 

In  this  state  of  society,  when  the  profits  on  agricultural  stock, 
by  the  supposition,  are  50  per  cent.,  the  profits  on  all  other  capital, 
employed  either  in  the  rude  manufactures  common  to  such  a  stage 
of  society,  or  in  foreign  commerce,  as  the  means  of  procuring  in 
exchange  for  raw  produce  those  commodities  which  may  be  in 
demand,  will  be  also  50  per  cent.f 

If  the  profits  on  capital  employed  in  trade  were  more  than 
50  per  cent.,  capital  would  be  withdrawn  from  the  land  to  be 


*  Mr  Malthas  considers,  that  the  surplus  of  produce  obtained  in  consequence  of 
diminished  wages,  or  of  improvements  in  agriculture,  to  be  one  of  the  causes  to  raise 
rent.  To  me  it  appears  that  it  will  only  augment  profits. 

“  The  accumulation  of  capital,  beyond  the  means  of  employing  it  on  land  of  the 
greatest  natural  fertility,  and  the  greatest  advantage  of  situation,  must  necessarily 
lower  profits;  while  the  tendency  of  population  to  increase  beyond  the  means  of  sub¬ 
sistence  must,  after  a  certain  time,  lower  the  wages  of  labour. 

“  The  expense  of  production  will  thus  he  diminished,  hut  the  value  of  the  produce, 
that  is,  the  quantity  of  labour,  and  of  the  other  products  of  labour  besides  corn,  which 
it  can  command,  instead  of  diminishing,  will  be  increased. 

“  There  will  be  an  increasing  number  of  people  demanding  subsistence,  and  ready 
to  offer  their  services  in  any  way  in  which  they  can  he  useful.  The  exchangeable  ! 
value  of  food  will  therefore  be  in  excess  above  the  cost  of  production,  including  in 
this  cost  the  full  profits  of  the  stock  employed  upon  the  land,  according  to  the  actual 
rate  of  profits  at  the  time  being.  And  this  excess  is  rent.” — An  Inquiry  into  the  Nature 
and  Progress  of  Rent,  page  18. 

In  page  19,  speaking  of  Poland,  one  of  the  causes  of  rent  is  again  attributed  to 
cheapness  of  labour.  In  page  22  it  is  said  that  a  fall  in  the  wages  of  labour,  or  a 
reduction  in  the  number  of  labourers  necessary  to  piroduce  a  given  effect,  in  conse¬ 
quence  of  agricultural  improvements,  will  raise  rent. 

t  It  is  not  meant,  that  strictly  the  rate  of  profits  on  agriculture  and  manufactures 
will  be  the  same,  but  that  they  will  hear  some  proportion  to  each  other.  Adam  Smith 
has  explained  why  profits  are  somewhat  less  on  some  employments  of  capital  than  cn 
others,  according  to  their  security,  cleanliness,  and  respectability,  &c.,  &e. 

What  the  proportion  may  he,  is  of  no  importance  to  my  argument,  as  I  am  only 
desirous  of  proving  that  the  profits  on  agricultural  capital  cannot  materially  vary, 
without  occasioning  a  similar  variation  in  the  profits  on  capital  employed  on  manufac¬ 
tures  and  commerce. 


ON  THE  PROFITS  OF  STOCK. 


373 


f  employed  in  trade.  If  they  were  less,  capital  would  be  taken  from 
trade  to  agriculture. 

After  all  the  fertile  land  in  the  immediate  neighbourhood  of  the 
first  settlers  were  cultivated,  if  capital  and  population  increased, 
more  food  would  be  required,  and  it  could  only  be  procured  from 
land  not  so  advantageously  situated.  Supposing,  then,  the  land  to 
be  equally  fertile,  the  necessity  of  employing  more  labourers,  horses, 
&c.,  to  carry  the  produce  from  the  place  where  it  was  grown  to  the 
place  where  it  was  to  be  consumed,  although  no  alteration  were  to 
take  place  in  the  wages  of  labour,  would  make  it  necessary  that 
more  capital  should  be  permanently  employed  to  obtain  the  same 
produce.  Suppose  this  addition  to  be  of  the  value  of  10  quarters 
of  wheat,  the  whole  capital  employed  on  the  new  land  would  be 
210,  to  obtain  the  same  return  as  on  the  old  ;  and,  consequently, 
the  profits  of  stock  would  fall  from  50  to  43  per  cent.,  or  90  on 
210.* 

On  the  land  first  cultivated,  the  return  would  be  the  same  as 
before,  namely  50  per  cent.,  or  1 00  quarters  of  wheat ;  but  the 
general  profits  of  stock  being  regulated  by  the  profits  made  on  the 
least  profitable  employment  of  capital  on  agriculture,  a  division  of 
the  100  quarters  would  take  place,  43  per  cent.,  or  86  quarters,  would 
constitute  the  profit  of  stock,  and  7  per  cent.,  or  14  quarters,  would 
constitute  rent.  And  that  such  a  division  must  take  place  is  evident, 
when  we  consider  that  the  owner  of  the  capital  of  the  value  of  210 
quarters  of  wheat  would  obtain  precisely  the  same  profit,  whether 
he  cultivated  the  distant  land,  or  paid  the  first  settler  14  quarters 
for  rent. 

In  this  stage,  the  profits  in  all  capital  employed  in  trade  would 
fall  to  43  per  cent. 

If,  in  the  further  progress  of  population  and  wealth,  the  produce 
of  more  land  were  required  to  obtain  the  same  return,  it  might  be 
necessary  to  employ,  either  on  account  of  distance,  or  the  worse 
quality  of  land,  the  value  of  220  quarters  of  wheat,  the  profits  of 
stock  would  then  fall  to  36  per  cent.,  or  80  on  220,  and  the  rent  of 
the  first  land  would  rise  to  28  quarters  of  wheat,  and  on  the  second 
portion  of  land  cultivated,  rent  would  now  commence,  and  would 
amount  to  14  quarters. 

The  profits  on  all  trading  capital  would  also  fall  to  36  per  cent. 

Thus,  by  bringing  successively  land  of  a  worse  quality,  or  less 
favourably  situated  into  cultivation,  rent  would  rise  on  the  land 
previously  cultivated,  and  precisely  in  the  same  degree  would  profits 
fall;  and  if  the  smallness  of  profits  do  not  check  accumulation, 
there  are  hardly  any  limits  to  the  rise  of  rent,  and  the  fall  of  profit. 


*  Profits  of  stock  fall,  because  land  equally  fertile  cannot  be  obtained,  and  through 
the  whole  progress  of  society  profits  are  regulated  by  the  difficulty  or  facility  of  pro¬ 
curing  food.  This  is  a  principle  of  great  importance,  and  has  been  almost  overlooked 
in  the  writings  of  Political  Economists.  They  appear  to  think  that  profits  of  stock 
can  be  raised  by  commercial  causes,  independently  of  the  supply  of  food. 


INFLUENCE  OF  A  LOW  PRICE  OF  CORN 


S74 

If  instead  of  employing  capital  at  a  distance  on  new  land,  an 
additional  capital  of  the  value  of  210  quarters  of  wheat  be  employed 
on  the  first  land  cultivated,  and  its  return  were  in  like  manner 
43  per  cent,  or  90  on  210 ;  the  produce  of  50  per  cent,  on  the  first 
capital,  would  be  divided  in  the  same  manner  as  before, — 43  per  cent, 
or  86  quarters  would  constitute  profit,  and  14  quarters  rent. 

If  220  quarters  were  employed  in  addition  with  the  same  result 
as  before,  the  first  capital  would  afford  a  rent,  of  28  ;  and  the  second 
of  14  quarters,  and  the  profits  on  the  whole  capital  of  630  quarters 
would  be  equal,  and  would  amount  to  36  per  cent. 

Supposing  that  the  nature  of  man  was  so  altered,  that  he  required 
double  the  quantity  of  food  that  is  now  necessary  for  his  subsistence, 
and  consequently,  that  the  expenses  of  cultivation  were  very  greatly 
increased.  Under  such  circumstances,  the  knowledge  and  capital 
of  an  old  society  employed  on  fresh  and  fertile  land  in  a  new 
country  would  leave  a  much  less  surplus  produce  ;  consequently, 
the  profits  of  stock  could  never  be  so  high.  But  accumulation, 
though  slower  in  its  progress,  might  still  go  on,  and  rent  would 
begin  just  as  before,  when  more  distant  or  less  fertile  land  were 
cultivated. 

The  natural  limit  to  population  would  of  course  be  much  earlier, 
and  rent  could  never  rise  to  the  height  to  which  it  may  now  do  ; 
because,  in  the  nature  of  things,  land  of  the  same  poor  quality 
would  never  be  brought  into  cultivation  ; — nor  could  the  same 
amount  of  capital  be  employed  on  the  better  land  with  any  adequate 
return  of  profit.* 

The  following  table  is  constructed  on  the  supposition,  that  the 
first  portion  of  land  yields  100  quarters  profit  on  a  capital  of  200 
quarters ;  the  second  portion,  90  quarters  on  210,  according  to  the 
foregoing  calculations.!  It  will  be  seen  that,  during  the  progress  of 
a  country,  the  whole  produce  raised  on  its  land,  will  increase,  and 
for  a  certain  time  that  part  of  the  produce  which  belongs  to  the 
profits  of  stock,  as  well  as  that  part  which  belongs  to  rent,  will 
increase ;  but  that,  at  a  later  period,  every  accumulation  of  capital 
will  be  attended  with  an  absolute,  as  well  as  a  proportionate 
diminution  of  profits, — though  rents  will  uniformly  increase.  A 
less  revenue,  it  will  be  seen,  will  be  enjoyed  by  the  owner  of  stock, 


*  In  all  that  I  have  said  concerning  the  origin  and  progress  of  rent,  I  iiave  briefly 
repeated,  and  endeavoured  to  elucidate  the  principles  which  Mr  Malthus  has  so  ably 
laid  down,  on  the  same  subject,  in  his  “  Inquiry  into  the  Nature  and  Progress  of 
Rent a  work  abounding  in  original  ideas, — which  are  useful  not  only  as  they  regard 
rent,  but  as  connected  with  the  question  of  taxation  ;  perhaps,  the  most  difficult  and 
intricate  of  all  the  subjects  on  which  Political  Economy  treats. 

f  It  is  scarcely  necessary  to  observe,  that  the  data  on  which  this  table  is  constructed 
are  assumed,  and  are  probably  very  far  from  the  truth.  They  were  fixed  on  as  tending 
to  illustrate  the  principle,  which  would  be  the  same,  whether  the  first  profits  were 
50  per  cent,  or  5, — or,  whether  an  additional  capital  of  10  quarters,  or  of  100,  were 
required  to  obtain  the  same  produce  from  the  cultivation  of  new  land.  In  proportion 
as  the  capital  employed  on  the  land,  consisted  more  of  fixed  capital,  and  less  of  cir¬ 
culating  capital,  would  rent  advance,  and  property  fall  less  rapidly. 


ON  TIIE  PROFITS  OF  STOCK. 


375 


when  1,350  quarters  are  employed  on  the  different  qualities  of  land, 
than  when  1,100  were  employed.  In  the  former  case  the  whole 
profits  will  be  only  270,  in  the  latter  275  ;  and  when  1,610  are 
employed,  profits  will  fall  to  241-|.* 

This  is  a  view  of  the  effects  of  accumulation  which  is  exceedingly 
curious,  and  has,  I  believe,  never  before  been  noticed. 

It  will  be  seen  by  the  table,  that,  in  a  progressive  country,  rent 
is  not  only  absolutely  increasing,  but  that  it  is  also  increasing  in  its 
ratio  to  the  capital  employed  on  the  land  ;  thus,  when  410  was  the 
•whole  capital  employed,  the  landlord  obtained  3y  per  cent. ;  when 
1,100,  13j  percent.  ;  and  when  1,880,  16^  percent.  The  landlord 
not  only  obtains  a  greater  produce,  but  a  larger  share. — (See  Table 
on  next  page.) 

Rent,f  then,  is  in  all  cases  a  portion  of  the  profits  previously 
obtained  on  the  land.  It  is  never  a  new  creation  of  revenue,  but 
always  part  of  a  revenue  already  created. 

Profits  of  stock  fall  only,  because  land  equally  well  adapted  to 
produce  food  cannot  be  procured  ;  and  the  degree  of  the  fall  of 
profits,  and  the  rise  of  rents,  depends  wholly  on  the  increased  ex¬ 
pense  of  production. 

If,  therefore,  in  the  progress  of  countries  in  wealth  and  population, 
new  portions  of  fertile  land  could  be  added  to  such  countries,  with 
every  increase  of  capital,  profits  would  never  fall,  nor  rents  rise.f 

If  the  money  price  of  corn,  and  the  wages  of  labour,  did  not  vary 
in  price  in  the  least  degree,  during  the  progress  of  the  country  in 
wealth  and  population,  still  profits  would  fall  and  rents  would  rise ; 
because  more  labourers  would  be  employed  on  the  more  distant  or 
less  fertile  land,  in  order  to  obtain  the  same  supply  of  raw  produce  ; 
and  therefore  the  cost  of  production  would  have  increased,  whilst 
the  value  of  the  produce  continued  the  same. 

But  the  price  of  corn,  and  of  all  other  raw  produce,  has  been 
invariably  observed  to  rise  as  a  nation  became  wealthy,  and  was 
obliged  to  have  recourse  to  poorer  lands  for  the  production  of  part 


*  This  would  be  the  effect  of  a  constantly  accumulating  capital,  in  a  country  which 
refused  to  import  foreign  and  cheaper  corn.  But  after  profits  have  very  much  fallen, 
accumulation  will  be  checked,  and  capital  will  be  exported  to  be  employed  in  those 
countries  where  food  is  cheap  and  profits  high.  All  European  colonies  have  been 
established  with  the  capital  of  the  mother  countries,  and  have  thereby  checked 
accumulation.  That  part  of  the  population,  too,  which  is  employed  in  the  foreign 
carrying  trade,  is  fed  with  foreign  corn.  It  cannot  be  doubted,  that  low  profits,  which 
are  the  inevitable  effects  of  a  really  high  price  of  corn,  tend  to  draw  capital  abroad : 
this  consideration  ought  therefore  to  be  a  powerful  reason  to  prevent  us  from  restrict¬ 
ing  importation. 

t  By  rent  I  always  mean  the  remuneration  given  to  the  landlord  for  the  use  of  the 
original  and  inherent  power  of  the  land.  If  either  the  landlord  expends  capital  on  his 
own  land,  or  the  capital  of  a  preceding  tenant  is  left  upon  it  at  the  expiration  of  his 
lease,  he  may  obtain  what  is  indeed  called  a  larger  rent,  but  a  portion  of  this  is  evi¬ 
dently  paid  for  the  use  of  capital.  The  other  portion  only  is  paid  for  the  use  of  the 
original  power  of  the  land. 

t  Excepting,  as  has  been  before  observed,  the  real  wages  of  labour  should  rise,  of 
a  worse  system  of  agriculture  be  practiseu. 


Table,  showing  the  Progress  of  Rent  and  Profit  under  an  assumed  Augmentation  of  Capital. 


376 


INFLUENCE  OF  A  LOW  PRICE  OF  CORN 


Profit  of 

3th  por- 

land  in 

quarters 

of  wheat. 

29.7 

J 

Rent  of 
7th  por¬ 
tion  of 
land  in 

quarters 

of  wheat. 

none. 

12.4 

Profit  of 
7tn  por¬ 
tion  of 
land  in 
quarters 
of  wheat. 

40 

27.6 

Rent  of 
6th  por 
tion  of 
land  in 
quarters 
of  wheat. 

C5  Hc*Hc* 

e.'N 

O  <— i  CS 

P 

Profit  of 
6th  por¬ 
tion  of 
land  in 
quarters 
of  wheat. 

Hc*He* 

O  I- 
O  CO 

Rent  of 
5th  por¬ 
tion  of 
land  in 
quarters 
of  wheat. 

none. 

12 

24 

33.6 

Profit  of 
5th  por. 
tion  of 
land  in 
quarters 
of  wheat. 

O  00  CD  CD 

CD  rf  CO  CM 

a 

q3  He*  He*  . 

O  >  CM  CO  rf 

P 

Profit  of 
4th  por¬ 
tion  of 
land  in 
quarters 
of  wheat. 

He*  HC*^ 

O  M  CD 

I-  iO  CC  (M 

Rent  of 
3'i  Por¬ 
tion  of 
land  in 
quarters 
of  wheat. 

c3 

r  t(<  lO  CC  N 
o  '  CM  CO  o 

p 

Profit  of 
3d  por¬ 
tion  of 
land  in  i 
quarters  1 
of  wheat. 

O  CD  V-O  Tf  CO  H4 

GO  CD  O  H  CO  CM 

Rent  of 
2d  por¬ 
tion  of 
land  in 
quarters 
of  wheat. 

c3  He*  He* 

g  Tf  N  CO  CO  I' 

o  CM  CO  •«*  CD 

P 

Profit  of 
2d  por¬ 
tion  of 
land  in 
quarters 
of  wheat. 

He*  He* 

O  CD  CO  CM  CM  <—  CO 
<J5  r-  CD  O  H  CO  CM 

Rent  of 
1st  por¬ 
tion  of 
land  in 
quarters 
of  wheat. 

d 

C^COOOOOGO 
o  "  Cl  T}<  o  «)  M. 

p 

Profit  of 
1st  por- 

land  in 
quarters 
of  wheat. 

O  «D  CM  O  O  O  O  CM 

O  00  I-  O  o  ■>?  CO  Ol 

Neat  produce 
in  quarters  of 
wheat,  after 

each  capital. 

oooooooo 

OOOOl-CDOH’CO 

Profit 
per  cent. 

o  co  o  o  o  o  O  h 
IT.  ^  CO  CO  CM  CM  -  —t 

m 

OOOOOOOO 
O  1-1  Cl  CO  >0  D  l'- 

CM  CM  CM  CM  CM  CM  CM  CM 

Total  produce  in 

quarters  of  wheat, 

after  paying  the  cost 

of  production. 

OOOOOOOO 

O  05  1^.  T  O  O  05  Cl 

ir—CMCO'trH'-HO  1 

Rent  per  cent,  on  the 

whole  capital. 

CO  CD  C5  •—  CO  o  CD 

Trofit  per  cent  on  the 
whole  capital. 

o  CO  D  O  O  ‘-C  H 

kC’tCOCOCMCM^H 

Whole  amount  of 
profits  in  quarters  re¬ 
ceived  by  owners  of 
stock. 

HeH©» 

OtDCCD^O^t-O 
o  MM  in  M'  O 

— <  .—i  CM  CM  CM  CM  CM  CM 

Whole  amount  of  rent 
received  by  landlords 
in  quarters  of  wheat. 

C  (M  h  ift  O  CO  ^ 

C  h  00  (N  00  h 

c  —*  — '  CM  CO 

When  the  whole  ca¬ 
pital  employed  is 

200 

410 

630 

SCO 

1100 

1350 

1610 

1880 

1st  Period 
2d  Ditto 

3d  Ditto 
4th  Ditto 
5th  Ditto 
6th  Ditto 
7th  Ditto 
8th  Ditto 

* _ 

ON  THE  PROFITS  OF  STOCK. 


377 


of  its  food  ;  and  very  little  consideration  will  convince  us,  that  such 
is  the  effect  which  would  naturally  be  expected  to  take  place  under 
such  circumstances. 

The  exchangeable  value  of  all  commodities  rises  as  the  difficulties 
of  their  production  increase.  If,  then,  new  difficulties  occur  in  the 
production  of  corn,  from  more  labour  being-  necessary,  whilst  no 
more  labour  is  required  to  produce  gold,  silver,  cloth,  linen,  &c.,  the 
exchangeable  value  of  corn  will  necessarily  rise,  as  compared  with 
those  tilings.  On  the  contrary,  facilities  in  the  production  of  corn, 
or  of  any  other  commodity  of  whatever  kind,  which  shall  afford  the 
same  produce  with  less  labour,  wiil  lower  its  exchangeable  value.* 
Thus  we  see  that  improvements  in  agriculture,  or  in  the  implements 
of  husbandry,  lower  the  exchangeable  value  of  corn  ;f  improvements 
in  the  machinery  connected  with  the  manufacture  of  cotton,  lower 
the  exchangeable  value  of  cotton  goods  ;  and  improvements  in 
mining,  or  the  discovery  of  new  and  more  abundant  mines  of  the 
precious  metals,  lower  the  value  of  gold  and  silver,  or,  which  is  the 
same  thing,  raise  the  price  of  all  other  commodities.  Wherever 
competition  can  have  its  full  effect,  and  the  production  of  the  com¬ 
modity  be  not  limited  by  nature,  as  is  the  case  with  some  wines, 
the  difficulty  or  facility  of  their  production  will  ultimately  regulate 
their  exchangeable  value.J  The  sole  effect,  then,  of  the  progress  of 
wealth  on  prices,  independently  of  all  improvements,  either  in  agri¬ 
culture  or  manufactures,  appears  to  be  to  raise  the  price  of  raw 
produce  and  of  labour,  leaving  all  other  commodities  at  their  original 
prices,  and  to  lower  general  profits  in  consequence  of  the  general 
rise  of  wages. 

This  fact  is  of  more  importance  than  at  first  sight  appears,  as  it 
relates  to  the  interest  of  the  landlord,  and  the  other  parts  of  the 
community.  Not  only  is  the  situation  of  the  landlord  improved 
(by  the  increasing  difficulty  of  procuring  food,  in  consequence  of 
accumulation,)  by  obtaining  an  increased  quantity  of  the  produce  eff 
the  land,  but  also  by  the  increased  exchangeable  value  of  that 
quantity.  If  his  rent  be  increased  from  14  to  28  quarters,  it  would 

*  The  low  price  of  corn,  caused  by  improvements  in  agriculture,  would  give  a 
stimulus  to  population,  by  increasing  profits  and  encouraging  accumulation,  which 
would  again  raise  the  price  of  corn  and  lower  profits.  But  a  larger  population  could 
be  maintained  at  the  same  price  of  corn,  the  same  profits  and  the  same  rents.  Im¬ 
provements  in  agriculture  may  then  be  said  to  increase  profits,  and  to  lower  for  a 
time  rents. 

t  The  causes,  which  render  the  acquisition  of  an  additional  quantity  of  corn  more 
difficult  are,  in  progressive  countries,  in  constant  operation,  whilst  marked  improve¬ 
ments  in  agriculture,  or  in  the  implements  of  husbandry,  are  of  less  frequent  occur¬ 
rence.  If  these  opposite  causes  acted  with  equal  effect,  corn  would  be  subject  only  to 
accidental  variation  of  price,  arising  from  bad  seasons,  from  greater  or  less  real  wages 
of  labour,  or  from  an  alteration  in  the  value  of  the  precious  metals,  proceeding  from 
their  abundance  or  scarcity. 

|  Though  the  price  of  all  commodities  is  ultimately  regulated  by,  and  is  always 
tending  to,  the  cost  of  their  production,  including  the  general  profits  of  stock,  they  are 
all  subject,  and  perhaps  corn  more  than  most  others,  to  an  accidental  price  proceeding 
from  temporary  causes. 


373 


INFLUENCE  OF  A  LOW  MICE  OF  COEN 


be  more  than  doubled,  because  he  would  be  able  to  command  more 
than  double  the  quantity  of  commodities,  in  exchange  for  the  28 
quarters.  As  rents  are  agreed  for,  and  paid  in  money,  he  would, 
under  the  circumstances  supposed,  receive  more  than  double  of  his 
former  money  rent. 

In  like  manner,  if  rent  fell,  the  landlord  would  suffer  two  losses  ; 
he  would  be  a  loser  of  that  portion  of  the  raw  produce  which  con¬ 
stituted  his  additional  rent ;  and  further,  he  would  be  a  loser  by 
the  depreciation  in  the  real  or  exchangeable  value  of  the  raw  produce 
in  which,  or  in  the  value  of  which,  his  remaining  rent  would  be  paid.* 

As  the  revenue  of  the  farmer  is  realized  in  raw  produce,  or  in  the 
value  of  raw  produce,  he  is  interested,  as  well  as  the  landlord,  in 
its  high  exchangeable  value,  but  a  low  price  of  produce  may  be 
compensated  to  him  by  a  great  additional  quantity. 

It  follows,  then,  that  the  interest  of  the  landlord  is  always  opposed 
to  the  interest  of  every  other  class  in  the  community.  His  situation 
is  never  so  prosperous,  as  when  food  is  scarce  and  dear :  whereas, 
all  other  persons  are  greatly  benefited  by  procuring  food  cheap, 
High  rent  and  low  profits,  for  they  invariably  accompany  each  other, 
ought  never  to  be  the  subject  of  complaint,  if  they  are  the  effect  of 
the  natural  course  of  things. 

They  are  the  most  unequivocal  proofs  of  wealth  and  prosperity, 
and  of  an  abundant  population,  compared  with  the  fertility  of'  the 
soil.  The  general  profits  of  stock  depend  wholly  on  the  profits  of 
the  last  portion  of  capital  employed  on  the  land  ;  if,  therefore, 
landlords  were  to  relinquish  the  whole  of  their  rents,  they  would 
neither  raise  the  general  profits  of  stock,  nor  lower  the  price  of  corn 
to  the  consumer.  It  would  have  no  other  effect,  as  Mr  Malthus 
has  observed,  than  to  enable  those  farmers,  whose  lands  now  pay  a 
rent,  to  live  like  gentlemen,  and  they  would  have  to  expend  that 
portion  of  the  general  revenue  which  now  falls  to  the  share  of  the 
landlord. 

A  nation  is  rich,  not  according  to  the  abundance  of  its  money, 
nor  to  the  high  money  value  at  which  its  commodities  circulate, 
but  according  to  the  abundance  of  its  commodities,  contributing  to 
its  comforts  and  enjoyments.  Although  this  is  a  proposition,  from 
which  few  would  dissent,  many  look  with  the  greatest  alarm  at  the 
prospect  of  the  diminution  of  their  money  revenue,  though  such 
reduced  revenue  should  have  so  improved  in  exchangeable  value, 
as  to  procure  considerably  more  of  all  the  necessaries  and  luxuries 
of  life. 

*  It  has  been  thought  that  the  price  of  com  regulates  the  prices  of  all  other  things. 
This  appears  to  me  to  be  a  mistake.  If  the  price  of  corn  is  affected  by  the  rise  or  fall 
of  the  value  of  the  precious  metals  themselves,  then  indeed  will  the  price  of  com¬ 
modities  he  also  affected,  but  they  vary,  because  the  value  of  money  varies,  not 
because  the  value  of  com  is  altered.  Commodities,  I  think,  cannot  materially  rise  or 
fall,  whilst  money  and  commodities  continue  in  the  same  proportions,  or  rather  whilst 
the  cost  of  production  of  both  estimated  in  corn  continues  the  same.  In  the  case  of 
taxation,  a  part  of  the  price  is  paid  for  the  liberty  of  using  the  commodity,  and  does 
not  constitute  its  real  price. 


ON  TIIE  PROFITS  OF  STOCK. 


379 


If,  then,  the  principles  here  stated  as  governing  rent  and  profit 
be  correct,  general  profits  on  capital  can  only  be  raised  by  a  fall  in 
the  exchangeable  value  of  food,  and  which  fall  can  only  arise  from 
three  causes : — 

1st.  The  fall  of  the  real  wages  of  labour,  which  shall  enable  the 
farmer  to  bring  a  greater  excess  of  produce  to  market. 

2d.  Improvements  in  agriculture,  or  in  the  implements  of  hus¬ 
bandry,  which  shall  also  increase  the  excess  of  produce. 

3dly.  The  discovery  of  new  markets,  from  whence  corn  may  be 
imported  at  a  cheaper  price  than  it  can  be  grown  for  at  home. 

The  first  of  these  causes  is  more  or  less  permanent,  according  as 
the  price  from  which  wages  fall,  is  more  or  less  near  that  remunera¬ 
tion  for  labour  which  is  necessary  to  the  actual  subsistence  of  the 
labourer. 

The  rise  or  fall  of  wages  is  common  to  all  states  of  society, 
whether  it  be  the  stationary,  the  advancing,  or  the  retrograde  state. 
In  the  stationary  state,  it  is  regulated  wholly  by  the  increase  or 
falling  off  of  the  population.  In  the  advancing  state,  it  depends  on 
whether  the  capital  or  the  population  advance,  at  the  more  rapid 
course.  In  the  retrograde  state,  it  depends  on  whether  population 
or  capital  decrease  with  the  greater  rapidity. 

As  experience  demonstrates  that  capital  and  population  alter¬ 
nately  take  the  lead,  and  wages  in  consequence  are  liberal  or 
scanty,  nothing  can  be  positively  laid  dowm,  respecting  profits,  as 
far  as  wages  are  concerned. 

But  I  think  it  may  be  most  satisfactorily  proved,  that  in  every 
society  advancing  in  wealth  and  population,  independently  of  the 
effect  produced  by  liberal  or  scanty  wages,  general  profits  must  fall, 
unless  there  be  improvements  in  agriculture,  or  corn  can  be  imported 
at  a  cheaper  price. 

It  seems  the  necessary  result  of  the  princijdes  which  have  been 
stated  to  regulate  the  progress  of  rent. 

This  principle  will,  however,  not  be  readily  admitted  by  those 
who  ascribe  to  the  extension  of  commerce,  and  discovery  of  new 
markets,  where  our  commodities  can  be  sold  dearer,  and  foreign 
commodities  can  be  bought  cheaper,  the  progress  of  profits,  with¬ 
out  any  reference  whatever  to  the  state  of  the  land,  and  the  rate  of 
profit  obtained  on  the  last  portions  of  capital  employed  upon  it. 
Nothing  is  more  common  than  to  hear  it  asserted,  that  profits  on 
agriculture  no  more  regulate  the  profits  of  commerce,  than  that  the 
profits  of  commerce  regulate  the  profits  on  agriculture.  It  is  con¬ 
tended  that  they  alternately  take  the  lead  ;  and,  if  the  profits  of 
commerce  rise,  which  it  is  said  they  do,  when  new  markets  are 
discovered,  the  profits  of  agriculture  will  also  rise  ;  for  it  is  admitted, 
that  if  they  did  not  do  so,  capital  would  be  withdrawn  from  the 
land  to  be  employed  in  the  more  profitable  trade.  But  if  the 
principles  respecting  the  progress  of  rent  be  correct,  it  is  evident, 
that,  with  the  same  population  and  cauital,  whilst  none  of  the  agri- 


380 


INFLUENCE  OF  A  LOW  PRICE  OF  CORN 


cultural  capital  is  withdrawn  from  the  cultivation  of  the  land, 
agricultural  profits  cannot  rise,  nor  can  rent  fall :  either  then  it 
must  be  contended,  which  is  at  variance  with  all  the  principles  of 
political  economy,  that  the  profits  on  commercial  capital  will  rise 
considerably,  whilst  the  profits  on  agricultural  capital  suffer  no 
alteration,  or  that,  under  such  circumstances,  the  profits  on  com¬ 
merce  will  not  rise.* 

It  is  this  latter  opinion  which  I  consider  as  the  true  one.  I  do 
not  deny  that  the  first  discoverer  of  a  new  and  better  market  may, 
for  a  time,  before  competition  operates,  obtain  unusual  profits.  He 
may  either  sell  the  commodities  he  exports  at  a  higher  price  than 
those  who  are  ignorant  of  the  new  market,  or  he  may  purchase  the 
commodities  imported  at  a  cheaper  price.  Whilst  he,  or  a  few 
more  exclusively  follow  this  trade,  their  profits  will  be  above  the 
level  of  general  profits.  But  it  is  of  the  general  rate  of  profit  that 
we  are  speaking,  and  not  of  the  profits  of  a  few  individuals ;  and  I 
cannot  doubt  that,  in  proportion  as  such  trade  shall  be  generally 
known  and  followed,  there  will  be  such  a  fall  in  the  price  of  the 
foreign  commodity  in  the  importing  country,  in  consequence  of  its 
increased  abundance,  and  the  greater  facility  with  which  it  is  pro¬ 
cured,  that  its  sale  will  afford  only  the  common  rate  of  profits — that 
so  far  from  the  high  profits  obtained  by  the  few  who  first  engaged 
in  the  new  trade  elevating  the  general  rate  of  profits — those  profits 
will  themselves  sink  to  the  ordinary  level. 

The  effects  are  precisely  similar  to  those  which  follow  from  the 
use  of  improved  machinery  at  home. 

Whilst  the  use  of  the  machine  is  confined  to  one,  or  a  very  few 
manufacturers,  they  may  obtain  unusual  profits,  because  they  are 
enabled  to  sell  their  commodities  at  a  price  much  above  the  cost  of 
production — but  as  soon  as  the  machine  becomes  general  to  the 
whole  trade,  the  price  of  the  commodities  will  sink  to  the  actual 
cost  of  production,  leaving  only  the  usual  and  ordinary  profits. 

During  the  period  of  capital  moving  from  one  employment  to 
another,  the  profits  on  that  to  which  capital  is  flowing  will  be  rela¬ 
tively  high,  but  will  continue  so  no  longer  than  till  the  requisite 
capital  is  obtained. 

There  are  two  tvays  in  which  a  country  may  be  benefited  by 
trade — one  by  the  increase  of  the  general  rate  of  profits,  which, 
according  to  my  opinion,  can  never  take  place  but  in  consequence 
of  cheap  food,  which  is  beneficial  only  to  those  who  derive  a  revenue 
from  the  employment  of  their  capital,  either  as  farmers,  manu- 

*  Mr  Maltlms  has  supplied  me  with  a  happy  illustration — he  has  correctly  compared 
“the  soil  to  a  great  number  of  machines,  all  susceptible  of  continued  improvement  by 
the  application  of  capital  to  them,  but  yet  of  very  different  original  qualities  and 
powers.”  How,  I  would  ask,  can  profits  rise  whilst  we  are  obliged  to  make  use  of 
that  machine  which  has  the  worst  original  qualities  and  powers  ?  We  cannot  abandon 
the  use  of  it ;  for  it  is  the  condition  on  which  we  obtain  the  food  necessary  for  our 
population,  and  the  demand  for  food  is  by  the  supposition  not  diminished  ;  but  who 
would  consent  to  use  it  if  he  could  make  greater  profits  elsewhere? 


on  the  rnoriTS  of  stock. 


381 


facturers,  merchants,  or  capitalists,  lending  their  money  at  interest 
— the  other  by  the  abundance  of  commodities,  and  by  a  fall  in  their 
exchangeable  value,  in  which  the  whole  community  participate. 
In  the  first  case,  the  revenue  of  the  country  is  augmented — in  the 
second,  the  same  revenue  becomes  efficient  in  procuring  a  greater 
amount  of  the  necessaries  and  luxuries  of  life. 

It  is  in  this  latter  mode  only*  that  nations  are  benefited  by  the 
extension  of  commerce,  by  the  division  of  labour  in  manufactures, 
and  by  the  discovery  of  machinery, —they  all  augment  the  amount 
of  commodities,  and  contribute  very  much  to  the  ease  and  happi¬ 
ness  of  mankind  ;  but  they  have  no  effect  on  the  rate  of  profits, 
because  they  do  not  augment  the  produce  compared  with  the  cost 
of  production  on  the  land,  and  it  is  impossible  that  all  other  profits 
should  rise  whilst  the  profits  on  land  are  either  stationary,  or 
retrograde. 

Profits,  then,  depend  on  the  price,  or  rather  on  the  value  of  food. 
Every  thing  which  gives  facility  to  the  production  of  food,  however 
scarce,  or  however  abundant  commodities  may  become,  will  raise 
the  rate  of  profits,  whilst  on  the  contrary,  every  thing  which  shall 
augment  the  cost  of  production  without  augmenting  the  quantity  of 
food,f  will,  under  every  circumstance,  lower  the  general  rate  of 
profits.  The  facilities  of  obtaining  food  are  beneficial  in  two  ways 
to  the  owners  of  capital  ;  it  at  the  same  time  raises  profits  and 
increases  the  amount  of  consumable  commodities.  The  facilities 
in  obtaining  all  other  things  only  increase  the  amount  of  com¬ 
modities. 

If,  then,  the  power  of  purchasing  cheap  food  be  of  such  great 
importance,  and  if  the  importation  of  corn  will  tend  to  reduce  its 
price,  arguments  almost  unanswerable  respecting  the  danger  of 
dependence  on  foreign  countries  fora  portion  of  our  food — for  in  no 
other  view  will  the  question  bear  an  argument — ought  to  be  brought 
forward  to  induce  us  to  restrict  importation,  and  thereby  forcibly 
to  detain  capital  in  an  employment  which  it  would  otherwise  leave 
for  one  much  more  advantageous. 

If  the  legislature  were  at  once  to  adopt  a  decisive  policy  w  ith 
regard  to  the  trade  in  corn — if  it  were  to  allow"  a  permanently  free 
trade,  and  did  not,  with  every  variation  of  price,  alternately  restrict 
and  encourage  importation,  we  should  undoubtedly  be  a  regularly 
importing  country.  We  should  be  so  in  consequence  of  the 
superiority  of  our  wealth  and  population,  compared  to  the  fertility 
of  our  soil  over  our  neighbours.  It  is  only  when  a  country  is  com¬ 
paratively  W'ealthy,  when  all  its  fertile  land  is  in  a  state  of  high 
cultivation,  and  that  it  is  obliged  to  have  recourse  to  its  inferior 

*  Excepting  when  the  extension  of  commerce  enables  us  to  obtain  food  at  really 
cheaper  prices. 

t  If  by  foreign  commerce,  or  the  discovery  of  machr  eiy,  the  commodities  con¬ 
sumed  by  the  labourer  should  become  much  cheaper,  wages  would  fall;  and  this,  as 
we  have  before  observed,  would  raise  the  profits  (/  the  farmer,  and  therefore,  all 
other  profits. 


382 


INFLUENCE  OF  A  LOW  PRICE  OF  CORN 


lands  to  obtain  the  food  necessary  for  its  population ;  or  when  it  is 
originally  without  the  advantages  of  a  fertile  soil,  that  it  can  become 
profitable  to  import  corn.* 

It  is,  then,  the  dangers  of  dependence  on  foreign  supply  for  any 
considerable  quantity  of  our  food,  which  can  alone  be  opposed  to 
the  many  advantages  which,  circumstanced  as  we  are,  would  attend 
the  importation  of  corn. 

These  dangers  do  not  admit  of  being  very  correctly  estimated ; 
they  are  in  some  degree  matters  of  opinion,  and  cannot,  like  the 
advantages  on  the  other  side,  be  reduced  to  accurate  calculation. 
They  are  generally  stated  to  be  two — 1st,  That  in  the  case  of  war 
a  combination  of  the  Continental  powers,  or  the  influence  of  our 
principal  enemy,  might  deprive  us  of  our  accustomed  supply — 2dly, 
That  when  bad  seasons  occurred  abroad,  the  exporting  countries 
would  have,  and  would  exercise,  the  power  of  withholding  the 
quantity  usually  exported  to  make  up  for  their  own  deficient 
supply.f 

If  we  became  a  regularly  importing  country,  and  foreigners  could 
confidently  rely  on  the  demand  of  our  market,  much  more  land 
would  be  cultivated  in  the  corn  countries  with  a  view  to  exportation. 
When  we  consider  the  value  of  even  a  few  weeks’  consumption  of 
corn  in  England,  no  interruption  could  be  given  to  the  export  trade, 
if  the  Continent  supplied  us  with  any  considerable  quantity  of  corn, 
without  the  most  extensive^  ruinous  commercial  distress — distress 
which  no  sovereign,  or  combination  of  sovereigns,  would  be  willing 
to  inflict  on  their  people ;  and,  if  willing,  it  would  be  a  measure  to 
which  probably  no  people  would  submit.  It  was  the  endeavour  of 
Buonaparte  to  prevent  the  exportation  of  the  raw  produce  of  Russia, 
more  than  any  other  cause,  which  produced  the  astonishing  efforts 
of  the  people  of  that  country  against  the  most  powerful  force  perhaps 
ever  assembled  to  subjugate  a  nation. 

The  immense  capital  which  would  be  employed  on  the  land,  could 
not  be  withdrawn  suddenly,  and  under  such  circumstances,  without 
immense  loss  ;  besides  which,  the  glut  of  corn  in  their  markets,  which 
would  affect  their  whole  supply,  and  lower  its  value  beyond  calcu¬ 
lation  ;  the  failure  of  those  returns,  which  are  essential  in  all 
commercial  adventures,  would  occasion  a  scene  of  wide-spreading 
ruin,  which,  if  a  country  would  patiently  endure,  would  render  it 
unfit  to  wage  war  with  any  prospect  of  success.  We  have  all 
witnessed  the  distress  in  this  country,  and  we  have  all  heard  of  the 
still  greater  distress  in  Ireland,  from  a  fall  in  the  price  of  corn,  at  a 
time,  too,  when  it  is  acknowledged  that  our  own  crop  has  been 
deficient ;  when  importation  has  been  regulated  by  price,  and  when 
we  have  not  experienced  any  of  the  effects  of  a  glut.  Of  what 
nature  would  that  distress  have  been  if  the  price  of  corn  had  fallen 

*  This  principle  is  most  abiv  stated  by  Mr  Malthus  in  page  42  of  “  An  Inquiry,”  &c. 

t  It  is  this  latter  opinion  which  is  chiefly  insisted  upon  by  Mr  Malthus,  in  his  late 
publication,  “The  Grounds  of  an  Opinion,”  &c. 


ON  THE  mOFITS  OF  STOCK. 


383 


to  a  half  a  quarter,  or  an  eighth  part  of  the  present  price  ?  For  the 
effects  of  plenty  or  scarcity,  on  the  price  of  corn,  are  incalculably 
greater  than  in  proportion  to  the  increase  or  deficiency  of  quantity. 
These,  then,  are  the  inconveniences  which  the  exporting  countries 
would  have  to  endure. 

Ours  would  not  be  light.  A  great  diminution  in  our  usual  supply, 
amounting  probably  to  one-eighth  of  our  whole  consumption,  it  must 
be  confessed,  would  be  an  evil  of  considerable  magnitude  ;  but  we 
have  obtained  a  supply  equal  to  this,  even  when  the  growth  of 
foreign  countries  was  not  regulated  by  the  constant  demand  of  our 
market.  We  all  know  the  prodigious  effects  of  a  high  price  in 
procuring  a  supply.  It  cannot,  I  think,  be  doubted,  that  we  should 
obtain  a  considerable  quantity  from  those  countries  with  which  we  . 
were  not  at  war  ;  which,  with  the  most  economical  use  of  our  own  ^ 
produce,  and  the  quantity  in  store,*  would  enable  us  to  subsist  till 
we  had  bestowed  the  necessary  capital  and  labour  on  our  own  land, 
with  a  view  to  future  production.  That  this  would  be  a  most 
afflicting  change,  I  certainly  allow  ;  but  I  am  fully  persuaded  that 
we  should  not  be  driven  to  such  an  alternative,  and  that,  notwith¬ 
standing  the  war,  we  should  be  freely  supplied  with  the  corn, 
expressly  grown  in  foreign  countries  for  our  consumption.  Buona¬ 
parte,  when  he  was  most  hostile  to  us,  permitted  the  exportation  of 
corn  to  England  by  licenses,  when  our  prices  were  high  from  a  bad 
harvest,  even  when  all  other  commerce  was  prohibited.  Such  a 
state  of  things  could  not  come  upon  us  suddenly  ;  a  danger  of  this 
nature  would  be  partly  foreseen,  and  due  precautions  would  be 
taken.  Would  it  be  wise,  then,  to  legislate  with  the  view  of 
preventing  an  evil  which  might  never  occur ;  and,  to  ward  off  a 
most  improbable  danger,  sacrifice  annually  a  revenue  of  some 
millions  ? 

In  contemplating  a  trade  in  corn,  unshackled  by  restrictions  on 
importation,  and  a  consequent  supply  from  France,  and  other 
countries,  where  it  can  be  brought  to  market  at  a  price  not  much 
above  half  that  at  which  we  can  ourselves  produce  it  on  some  of 
our  poorer  lands,  Mr  Malthus  does  not  sufficiently  allow  for  the 
greater  quantity  of  corn  which  would  be  grown  abroad,  if  impor¬ 
tation  was  to  become  the  settled  policy  of  this  country.  There 
cannot  be  the  least  doubt  that  if  the  corn  countries  could  depend 
on  the  markets  of  England  for  a  regular  demand,  if  they  could  be 
perfectly  secure  that  our  laws  respecting  the  corn  trade  would  not 
be  repeatedly  vacillating  between  bounties,  restrictions,  and  prohi¬ 
bitions,  a  much  larger  supply  would  be  grown,  and  the  danger  of  a 
greatly  diminished  exportation,  in  consequence  of  bad  seasons, 
would  be  less  likely^  to  occur.  Countries  which  have  never  yet 
supplied  us  might,  if  our  policy  was  fixed,  afford  us  a  considerable 
quantity. 


*  As  London  is  to  be  a  depot  for  foreign  com,  this  store  might  be  very  great. 


384 


INFLUENCE  OF  A  LOW  PRICE  OF  CORN 


It  is  at  such  times  that  it  would  be  particularly  the  interest  of 
foreign  countries  to  supply  our  wants,  as  the  exchangeable  value  of 
corn  does  not  rise  in  proportion  onty  to  the  deficiency  of  supply, 
but  two,  three,  four  times  as  much,  according  to  the  amount  of  the 
deficiency. 

If  the  consumption  of  England  is  10  million  quarters,  which,  in 
an  average  year,  would  sell  for  40  millions  of  money ;  and,  if  the 
supply  should  be  deficient  one-fourth,  the  7,500,000  quarters  would 
not  sell  for  40  millions  only,  but  probably  for  fifty  millions  or  more. 
Under  the  circumstances,  then,  of  bad  seasons,  the  exporting  country 
would  content  itself  with  the  smallest  possible  quantity  necessary 
for  their  own  consumption,  and  would  take  advantage  of  the  high 
price  in  England  to  sell  all  they  could  spare,  as  not  only  would  corn 
be  high,  as  compared  with  money,  but  as  compared  with  all  other 
things  ;  and  if  the  growers  of  corn  adopted  any  other  rule,  they 
would  be  in  a  worse  situation,  as  far  as  regarded  wealth,  than  if 
they  had  constantly  limited  the  growth  of  corn  to  the  wants  of  their 
own  people. 

If  100  millions  of  capital  were  employed  on  the  land  to  obtain 
the  quantity  necessary  to  their  own  subsistence,  and  20  millions 
more  that  they  might  export  the  produce,  they  would  lose  the  whole 
return  of  the  20  millions  in  the  scarce  year,  which  they  would  not 
have  done  had  they  not  been  an  exporting  country.  At  whatever 
price  exportation  might  be  restricted  by  foreign  countries,  the 
chance  of  corn  rising  to  that  price  would  be  diminished  by  the 
greater  quantity  produced  in  consequence  of  our  demand. 

With  respect  to  the  supply  of  corn,  it  has  been  remarked,  in 
reference  to  a  single  country,  that  if  the  crops  are  bad  in  one 
district  they  are  generally  productive  in  another ;  that  if  the  weather 
is  injurious  to  one  soil,  or  to  one  situation,  it  is  beneficial  to  a  diffe¬ 
rent  soil  and  different  situation  ;  and,  by  this  compensating  power, 
Providence  has  bountifully  secured  us  from  the  frequent  recurrence 
of  dearths.  If  this  remark  be  just  as  applied  to  one  country,  how 
much  more  strongly  may  it  be  applied  to  all  the  countries  together 
which  compose  our  world  ?  Will  not  the  deficiency  of  one  country 
be  made  up  by  the  plenty  of  another?  and,  after  the  experience 
which  we  have  had  of  the  power  of  high  prices  to  procure  a  supply, 
can  we  have  any  just  reason  to  fear  that  we  shall  be  exposed  to  any 
particular  danger  from  depending  on  importation  for  so  much  corn 
as  may  be  necessary  for  a  few  wreeks  of  our  consumption. 

From  all  that  I  can  learn,  the  price  of  corn  in  Holland,  which 
country  depends  almost  wholly  on  foreign  supply,  has  been  remark¬ 
ably  steady,  even  during  the  convulsed  times  which  Europe  has 
lately  experienced,  —  a  convincing  proof,  notwithstanding  the 
smallness  of  the  country,  that  the  effects  of  bad  seasons  are  not 
exclusively  borne  by  importing  countries. 

That  great  improvements  have  been  made  in  agriculture,  and 
that  much  capital  has  been  expended  on  the  land,  it  is  not 


ON  THE  PROFITS  OF  STOCK. 


385 


attempted  to  deny ;  but,  with  all  those  improvements*  we  have  not 
overcome  the  natural  impediments  resulting  from  our  increasing 
wealth  and  prosperity,  which  obliges  us  to  cultivate  at  a  disadvan¬ 
tage  our  poor  lands  if  the  importation  of  corn  is  restricted  or 
prohibited.  If  we  were  left  to  ourselves,  unfettered  by  legislative 
enactments,  we  should  gradually  withdraw  our  capital  from  the 
cultivation  of  such  lands,  and  import  the  produce  which  is  at 
present  raised  upon  them.  The  capital  withdrawn  would  be 
employed  in  the  manufacture  of  such  commodities  as  would  be 
exported  in  return  for  the  corn.*  Such  a  distribution  of  part  of 
the  capital  of  the  country  would  be  more  advantageous  or  it  would 
not  be  adopted.  This  principle  is  one  of  the  best  established  in  the 
science  of  political  economy,  and  by  no  one  is  more  readily  admitted 
than  by  Mr  Malthus.  It  is  the  foundation  of  all  his  arguments,  in 
his  comparison  of  the  advantages  and  disadvantages  attending  an 
unrestricted  trade  in  corn,  in  his  u  Observations  on  the  Corn 
Laws.” 

In  his  last  publication,  however,  in  one  part  of  it,  he  dwells  with 
much  stress  on  the  losses  of  agricultural  capital,  which  the  country 
would  sustain,  by  allowing  an  unrestricted  importation.  He  laments 
the  loss  of  that  which  by  the  course  of  events  has  become  of  no  use 
to  us,  and  by  the  employment  of  which  we  actually  lose.  We 
might  just  as  fairly  have  been  told,  when  the  steam-engine,  or  Mr 
Arkwright’s  cotton  machine  was  brought  to  perfection,  that  it  would 
be  wrong  to  adopt  the  use  of  them,  because  the  value  of  the  old 
clumsy  machinery  would  be  lost  to  us.  That  the  farmers  of  the 
poorer  lands  would  be  losers,  there  can  be  no  doubt,  but  the  public 
would  gain  many  times  the  amount  of  their  losses  ;  and,  after  the 
exchange  of  capital  from  land  to  manufactures  had  been  effected, 
the  farmers  themselves,  as  well  as  every  other  class  of  the  commu¬ 
nity,  except  the  landholders,  would  very  considerably  increase  their 
profits. 

It  might,  however,  be  desirable,  that  the  farmers,  during  their 
current  leases,  should  be  protected  against  the  losses  which  they 
would  undoubtedly  suffer  from  the  new  value  of  money,  which 
would  result  from  a  cheap  price  of  corn,  under  their  existing  money 
engagements  with  their  landlords. 

Although  the  nation  would  sacrifice  much  more  than  the  farmers 
would  save  even  by  a  temporary  high  price  of  corn,  it  might  be  just 
to  lay  restrictive  duties  on  importation  for  three  or  four  years,  and 
to  declare  that,  after  that  period,  the  trade  in  corn  shoidd  be  free, 
and  that  imported  corn  should  be  subject  to  no  other  duty  than 

*  If  it  be  true,  as  Mr  Malthus  observes,  that  in  Ireland  there  are  no  manufactures 
in  which  capital  could  be  profitably  employed,  capital  would  not  be  withdrawn  from 
the  land,  and  then  there  would  be  no  loss  of  agricultural  capital.  Ireland  would  in 
such  case  have  the  same  surplus  corn  produce,  although  it  would  be  of  less  exchange¬ 
able  value.  Her  revenue  might  be  diminished ;  but  if  she  would  not  or  could  not 
manufacture  goods,  and  would  not  cultivate  the  ground,  she  would  have  no  revenue 
it  all. 


E  F. 


386 


INFLUENCE  OF  A  LOW  PRICE  OF  CORN 


such  as  we  might  find  it  expedient  to  impose  on  corn  of  our  own 
growth.* 

Mr  Malthus  is,  no  doubt,  correct,  when  he  says,  “  If  merely  the 
best  modes  of  cultivation  now  in  use,  in  some  parts  of  Great  Britain, 
were  generally  extended,  and  the  whole  country  was  brought  to  a 
level,  in  proportion  to  its  natural  advantages,  of  soil  and  situation, 
by  the  further  accumulation  and  more  equable  distribution  of  capital 
and  skill,  the  quantity  of  additional  produce  would  be  immense,  and 
would  afford  the  means  of  subsistence  to  a  very  great  increase  of 
population.! 

This  reflection  is  true,  and  is  highly  pleasing — it  shows  that  we 
are  yet  at  a  great  distance  from  the  end  of  our  resources,  and  that 
we  may  contemplate  an  increase  of  prosperity  and  wealth  far  ex¬ 
ceeding  that  of  any  country  which  has  preceded  us.  This  may  take 
place  under  either  system,  that  of  importation  or  restriction,  though 
not  with  an  equally  accelerated  pace,  and  is  no  argument  why  we 
should  not,  at  every  period  of  our  improvement,  avail  ourselves  of 
the  full  extent  of  the  advantages  offered  to  our  acceptance — it  is  no 
reason  why  we  should  not  make  the  very  best  disposition  of  our 
capital,  so  as  to  ensure  the  most  abundant  return.  The  land  has, 
as  I  before  said,  been  compared  by  Mr  Malthus,  to  a  great  number 
of  machines,  all  susceptible  of  continued  improvement  by  the  appli¬ 
cation  of  capital  to  them,  but  yet  of  very  different  original  qualities 
and  powers.  Would  it  be  wise  at  a  great  expense  to  use  some  of 
the  worst  of  these  machines,  when  at  a  less  expense  we  could  hire 
the  very  best  from  our  neighbours. 

Mr  Malthus  thinks  that  a  low  money  price  of  corn  would  not  be 
favourable  to  the  lower  classes  of  society,  because  the  real  exchange¬ 
able  value  of  labour,  that  is,  its  power  of  commanding  the  neces¬ 
saries,  conveniences,  and  luxuries  of  life,  would  not  be  augmented, 
but  diminished  by  a  low  money  price.  Some  of  his  observations  on 
this  subject  are  certainly  of  great  weight,  but  he  does  not  sufficiently 
allow  for  the  effects  of  a  better  distribution  of  the  national  capital 
on  the  situation  of  the  lower  classes.  It  would  be  beneficial  to 
them,  because  the  same  capital  would  employ  more  hands  ;  besides, 
that  the  greater  profits  would  lead  to  further  accumulation  ;  and 
thus  would  a  stimulus  be  given  to  population  by  really  high  wages, 
which  could  not  fail  for  a  long  time  to  ameliorate  the  condition  of 
the  labouring  classes. 


*  I  by  no  means  agree  with  Adam  Smith,  or  with  Mr  Malthus,  respecting  the  effects 
of  taxation  on  the  necessaries  of  life.  The  former  can  find  no  term  too  severe  by 
which  to  characterise  them.  Mr  Malthus  is  more  lenient.  They  both  think  that  such 
taxes,  incalculably  more  than  any  other,  tend  to  diminish  capital  and  production.  1 
do  not  say  that  they  are  the  best  of  taxes,  but  they  do  not,  1  think,  subject  us  to  any 
of  the  disadvantages  of  which  Adam  Smith  speaks  in  foreign  trade;  nor  do  they  pro¬ 
duce  effects  vety  different  from  other  taxes.  Adam  Smith  thought  that  such  taxes  fell 
exclusively  on  the  landholder;  Mr  Malthus  thinks  they  are  divided  between  the  land¬ 
holder  and  consumer.  It  appears  to  me  that  they  are  paid  wholly  by  the  consumer, 
t  Page  22,  “  Grounds,”  &c. 


ON  THE  PROFITS  OF  STOCK 


387 


The  effects  on  the  interests  of  this  class,  would  be  nearly  the 
same  as  the  effects  of  improved  machinery,  which,  it  is  now  no 
longer  questioned,  has  a  decided  tendency  to  raise  the  real  wages 
of  labour. 

Mr  Malthus  also  observes,  “  that  of  the  commercial  and  manu 
factoring  classes,  only  those  who  are  directly  engaged  in  foreign 
trade  will  feel  the  benefit  of  the  importing  system.” 

If  the  view  which  has  been  taken  of  rent  be  correct,— if  it  rise  as 
general  profits  fall,  and  fall  as  general  profits  rise, — and  if  the  effect 
of  importing  corn  is  to  lower  rent,  which  has  been  admitted,  and 
ably  exemplified  by  Mr  Malthus  himself, — all  who  are  concerned  in 
trade, — all  capitalists  whatever,  whether  they  be  farmers,  manufac¬ 
turers,  or  merchants,  will  have  a  great  augmentation  of  profits.  A 
fall  in  the  price  of  corn,  in  consequence  of  improvements  in  agri¬ 
culture  or  of  importation,  will  lower  the  exchangeable  value  of  corn 
only, — the  price  of  no  other  commodity  will  be  affected.  If,  then, 
the  price  of  labour  falls,  which  it  must  do  when  the  price  of  corn 
is  lowered,  the  real  profits  of  all  descriptions  must  rise;  and  no 
person  will  be  so  materially  benefited  as  the  manufacturing  and 
commercial  part  of  society. 

If  the  demand  for  home  commodities  should  be  diminished, 
because  of  the  fall  of  rent  on  the  part  of  the  landlords,  it  will  be 
increased  in  a  far  greater  degree  by  the  increased  opulence  of  the 
commercial  classes. 

If  restrictions  on  the  importation  of  corn  should  take  place,  I  do 
not  apprehend  that  we  shall  lose  any  part  of  our  foreign  trade ;  on 
this  point  I  agree  with  Mr  Malthus.  In  the  case  of  a  free  trade  in 
corn,  it  would  be  considerably  augmented  ;  but  the  question  is  not, 
whether  we  can  retain  the  same  foreign  trade — but,  whether,  in 
both  cases,  it  will  be  equally  profitable. 

Our  commodities  would  not  sell  abroad  for  more  or  less  in  con¬ 
sequence  of  a  free  trade,  and  a  cheap  price  of  corn  ;  but  the  cost  of 
production  to  our  manufacturers  would  be  very  different  if  the  price 
of  corn  was  eighty,  or  was  sixty  shillings  per  quarter ;  and  conse¬ 
quently  profits  would  be  augmented  by  all  the  cost  saved  in  the 
production  of  the  exported  commodities. 

Mr  Malthus  notices  an  observation,  which  was  first  made  by 
Hume,  that  a  rise  of  prices  has  a  magic  effect  on  industry :  he 
states  the  effects  of  a  fall  to  be  proportionally  depressing.*  A  rise 
of  prices  has  been  stated  to  be  one  of  the  advantages,  to  counter¬ 
balance  the  many  evils  attendant  on  a  depreciation  of  money,  from 
a  real  fill  in  the  value  of  the  precious  metals,  from  raising  the 
denomination  of  the  coin,  or  from  the  over-issue  of  paper-money. 

It  is  said  to  be  beneficial,  because  it  betters  the  situation  of  the 
commercial  classes  at  the  expense  of  those  enjoying  fixed  incomes ; 
—and  that  it  is  chiefly  in  those  classes,  that  the  great  accumulations 
are  made,  and  productive  industry  encouraged. 

*  Grounds,  &c.  p.  .32. 


388 


INFLUENCE  OF  A  LOAF  PKICE  OF  CORN 


A  recurrence  to  a  better  monetary  system,  it  is  said,  though 
highly  desirable,  tends  to  give  a  temporary  discouragement  to 
accumulation  and  industry,  by  depressing  the  commercial  part  of 
the  community,  and  is  the  effect  of  a  fall  of  prices  :  Mr  Malthus 
supposes  that  such  an  effect  will  be  produced  by  the  fall  of  the  price 
of  corn.  If  the  observation  made  by  Hume  were  ivell  founded,  still 
it  would  not  apply  to  the  present  instance  : — for  every  thing  that 
the  manufacturer  would  have  to  sell,  would  be  as  dear  as  ever :  it 
is  only  what  he  -would  buy  that  would  be  cheap,  namely,  corn  and 
labour,  by  which  his  gains  would  be  increased.  I  must  again  observe, 
that  a  rise  in  the  value  of  money  lowers  all  things ;  whereas  a  fall 
in  the  price  of  corn,  only  lowers  the  wages  of  labour,  and  therefore 
raises  profits. 

If,  then,  the  prosperity  of  the  commercial  classes  will  most  cer¬ 
tainly  lead' to  accumulation  of  capital,  and  the  encouragement  of 
productive  industry ;  these  can  by  no  means  be  so  surely  obtained 
as  by  a  fall  in  the  price  of  corn. 

I  cannot  agree  with  Mr  Malthus  in  his  approbation  of  the  opinion 
of  Adam  Smith,  “  that  no  equal  quantity  of  productive  labour  em¬ 
ployed  in  manufactures,  can  ever  occasion  so  great  a  re-production 
as  in  agriculture.”  I  suppose  that  he  must  have  overlooked  the 
term  ever  in  this  passage,  otherwise  the  opinion  is  more  consistent 
with  the  doctrine  of  the  Economist,  than  with  those  which  he  has 
maintained ;  as  he  has  stated,  and  I  think  correctly,  that  in  the  first 
settling  of  a  new  country,  and  in  every  stage  of  its  improvement, 
there  is  a  portion  of  its  capital  employed  on  the  land,  for  the  profits 
of  stock  merely,  and  which  yields  no  rent  Avhatever.  Productive 
labour  employed  on  such  land  never  does  in  fact  afford  so  great  a  re¬ 
production,  as  the  same  productive  labour  employed  in  manufactures. 

The  difference  is  not  indeed  great,  and  is  voluntarily  relinquished, 
on  account  of  the  security  and  respectability  which  attends  the 
employment  of  capital  on  land.  In  the  infancy  of  society,  when  no 
rent  is  paid,  is  not  the  re-production  of  value  in  the  coarse  manu¬ 
factures,  and  in  the  implements  of  husbandry  with  a  given  capital, 
at  least  as  great  as  the  value  which  the  same  capital  would  afford  if 
employed  on  the  land  ? 

This  opinion  indeed  is  at  variance  with  all  the  general  doctrines 
of  Mr  Malthus,  which  he  has  so  ably  maintained  in  this  as  well  as 
in  all  his  other  publications.  In  the  “  Inquiry,”  speaking  of  what 
I  consider  a  similar  opinion  of  Adam  Smith,  he  observes,  “  I  cannot, 
however,  agree  with  him  in  thinking  that  all  land  which  yields  food 
must  necessarily  yield  rent.  The  land  which  is  successively  taken 
into  cultivation  in  improving  countries,  may  only  pay  profits  and 
labour.  A  fair  profit  on  the  stock  employed,  including,  of  course, 
the  payment  of  labour,  will  always  be  a  sufficient  inducement  to 
cultivate.”  The  same  motives  will  also  induce  some  to  manufacture 
goods,  and  the  profits  of  both,  in  the  same  stages  of  society,  will  be 
nearly  the  same. 


ON  THE  PROFITS  OF  STOCK. 


389 


In  the  course  of  these  observations,  I  have  often  had  occasion  to 
insist,  that  rent  never  falls  without  the  profits  of  stock  rising.  If 
it  suit  us  to-day  to  import  corn  rather  than  grow  it,  we  are  solely 
influenced  by  the  cheaper  price.  If  we  import,  the  portion  of  capital 
last  employed  on  the  land,  and  which  yielded  no  rent,  will  be  with¬ 
drawn  ;  rent  will  fall  and  profits  rise,  and  another  portion  of  capital 
employed  on  the  land  will  come  under  the  same  description  of  only 
yielding  the  usual  profits  of  stock. 

If  corn  can  be  imported  cheaper  than  it  can  be  grown  on  this 
rather  better  land,  rent  will  again  fall  and  profits  rise,  and  another 
and  better  description  of  land  will  now  be  cultivated,  for  profits 
only.  In  every  step  of  our  progress,  profits  of  stock  increase  and 
rents  fill,  and  more  land  is  abandoned  ;  besides  which,  the  country 
saves  all  the  difference  between  the  price  at  which  corn  can  be 
grown,  and  the  price  at  which  it  can  be  imported,  on  the  quantity 
we  receive  from  abroad. 

Mr  Malthas  has  considered,  with  the  greatest  ability,  the  effect 
of  a  cheap  price  of  corn  on  those  who  contribute  to  the  interest  of 
our  enormous  debt.  I  most  fully  concur  in  many  of  his  conclusions 
on  this  part  of  the  subject.  The  wealtli  of  England  would,  I  am 
persuaded,  be  considerably  augmented  by  a  great  reduction  in  the 
price  of  corn,  but  the  whole  money  value  of  that  wealth  would  be 
diminished.  It  would  be  diminished  by  the  whole  difference  of  the 
money  value  of  the  corn  consumed, — it  would  be  augmented  by  the 
increased  exchangeable  value  of  all  those  commodities  which  would 
be  exported  in  exchange  for  the  corn  imported.  The  latter  would, 
however,  be  very  unequal  to  the  former;  therefore  the  money 
value  of  the  commodities  of  England  would,  undoubtedly,  be  con¬ 
siderably  lowered. 

But,  though  it  is  true,  that  the  money  value  of  the  mass  of  our 
commodities  would  be  diminished,  it  by  no  means  follows  that  our 
annual  revenue  would  fall  in  the  same  decree.  The  advocates  for 

O 

importation  ground  their  opinion  of  the  advantages  of  it  on  the 
conviction  that  the  revenue  would  not  so  fall.  And,  as  it  is  from  our 
revenue  that  taxes  are  paid,  the  burthen  might  not  be  really  augmented. 

Suppose  the  revenue  of  a  country  to  fall  from  10  to  9  millions, 
whilst  the  value  of  money  altered  in  the  proportion  of  10  to  8, 
such  country  would  have  a  larger  neat  revenue,  after  paying  a 
million  from  the  smaller,  than  it  would  have  after  paying  it  from 
the  larger  sum. 

That  the  stockholder  would  receive  more  in  real  value  than  what 
he  contracted  for,  in  the  loans  of  the  late  years,  is  also  true  ;  but, 
as  the  stockholders  themselves  contribute  very  largely  to  the  public 
burthens,  and  therefore  to  the  payment  of  the  interest  which  they 
receive,  no  inconsiderable  proportion  of  the  taxes  would  fall  on 
them  ;  and,  if  we  estimate  at  its  true  value  the  additional  profits 
made  by  the  commercial  class,  they  would  still  be  great  gainers, 
notwithstanding  their  really  augmented  contributions. 


390 


INFLUENCE  OF  A  LOAV  PRICE  OF  CORN. 


The  landlord  would  be  the  only  sufferer  by  paying  really  more, 
not  only  without  any  adequate  compensation,  but  with  lowered 
rents. 

It  may,  indeed,  be  urged,  on  the  part  of  the  stockholder,  and 
those  who  live  on  fixed  incomes,  that  they  have  been  by  far  the 
greatest  sufferers  by  the  war.  The  value  of  their  revenue  has  been 
diminished  by  the  rise  in  the  price  of  corn,  and  by  the  depreciation 
in  the  value  of  paper-money,  whilst,  at  the  same  time,  the  value  of 
their  capital  has  been  very  much  diminished  from  the  lower  price 
of  the  funds.  They  have  suffered,  too,  from  the  inroads  lately 
made  on  the  sinking  fund,  and  which,  it  is  supposed,  will  be  still 
further  extended, — a  measure  of  the  greatest  injustice, — in  direct 
violation  of  solemn  contracts  ;  for  the  sinking  fund  is  as  much  a 
part  of  the  contract  as  the  dividend,  and,  as  a  source  of  revenue, 
utterly  at  variance  with  all  sound  principles.  It  is  to  the  growth 
of  that  fund  that  we  ought  to  look  for  the  means  of  carrying  on 
future  wars,  unless  we  are  prepared  to  relinquish  the  funding  system 
altogether.  To  meddle  with  the  sinking  fund,  is  to  obtain  a  little 
temporary  aid  at  the  sacrifice  of  a  great  future  advantage.  It  is 
reversing  the  whole  system  of  Mr  Pitt,  in  the  creation  of  that  fund : 
he  proceeded  on  the  conviction  that,  for  a  small  present  burthen, 
an  immense  future  advantage  would  be  obtained  ;  and,  after  wit¬ 
nessing,  as  we  have  done,  the  benefits  which  have  already  resulted 
from  his  inflexible  determination  to  leave  that  fund  untouched,  even 
when  he  was  pressed  by  the  greatest  financial  distress,  when  3  per 
cents,  were  so  low  as  48,  we  cannot,  I  think,  hesitate  in  pronouncing 
that  he  would  not  have  countenanced,  had  he  still  lived,  the  measures 
which  have  been  adopted. 

To  recur,  however,  to  the  subject  before  me,  I  shall  only  further 
observe,  that  I  shall  greatly  regret  that  considerations  for  any 
particular  class  are  allowed  to  check  the  progress  of  the  wealth  and 
population  of  the  country.  If  the  interests  of  the  landlord  be  of 
sufficient  consequence,  to  determine  us  not  to  avail  ourselves  of  all 
the  benefits  which  would  follow  from  importing  corn  at  a  cheap 
price,  they  should  also  influence  us  in  rejecting  all  improvements  in 
agriculture,  and  in  the  implements  of  husbandry  ;  for  it  is  as  certain 
that  corn  is  rendered  cheap,  rents  are  lowered,  and  the  ability  of 
the  landlord  to  pay  taxes  is,  for  a  time  at  least,  as  much  impaired 
by  such  impi’ovements  as  by  the  importation  of  corn.  To  be  con¬ 
sistent,  then,  let  us  by  the  same  act  arrest  improvement,  and 
prohibit  importation. 


PROPOSALS 


FOR  AN 

ECONOMICAL  AND  SECURE  CURRENCY; 


WITH 


OBSERVATIONS 


ON  THE 


PROFITS  OF  THE  BANK  OF  ENGLAND 

AS  THEY  REGARD  THE  PUBLIC  AND  THE  PROPRIETORS  OF 
BANK  STOCK. 


SECOND  EDITION. 


LONDON. 


1816. 


INTRODUCTION. 


TnE  following  important  questions  concerning  the  Bank  of  England 
will,  next  session,  come  under  the  discussion  of  Parliament  : — 

1st,  Whether  the  Bank  shall  be  obliged  to  pay  their  notes  in 
specie  at  the  demand  of  the  holders  ? 

2dly,  Whether  any  alteration  shall  be  made  in  the  terms  agreed 
upon  in  1808,  between  Government  and  the  Bank,  for  the  manage¬ 
ment  of  the  national  debt  ? 

And,  3dly,  What  compensation  the  public  shall  receive  for  the 
large  amount  of  public  deposits  from  which  the  Bank  derive  profit  ? 

In  point  of  importance,  the  first  of  these  questions  greatly  surpasses 
the  rest ;  but  so  much  has  already  been  written  on  the  subject  of 
currency,  and  on  the  laws  by  which  it  should  be  regulated,  that  1 
should  not  trouble  the  reader  with  any  further  observations  on  those 
topics,  did  I  not  think  that  a  more  economical  mode  of  effecting 
our  payments  might  be  advantageously  adopted  ;  to  explain  which, 
it  will  be  necessary  to  premise  briefly  some  of  the  general  principles 
which  are  found  to  constitute  the  laws  of  currency,  and  to  vindicate 
them  from  some  of  the  objections  which  are  brought  against  them. 

The  other  two  questions,  though  inferior  in  importance,  are,  at 
these  times  of  pressure  on  our  finances,  when  economy  is  so  essential, 
well  deserving  of  the  serious  consideration  of  Parliament.  If,  on 
examination,  it  should  be  found  that  the  services  performed  by  the 
B^ink  for  the  public  are  most  prodigally  paid,  and  that  this  wealthy 
corporation  has  been  accumulating  a  treasure  of  which  no  example 
can  be  brought — much  of  it  at  the  expense  of  the  public,  and  owing 
to  the  negligence  and  forbearance  of  Government — a  better  arrange¬ 
ment,  it  is  hoped,  will  now  be  made  ;  which,  while  it  secures  to  the 
Bank  a  just  compensation  for  the  responsibility  and  trouble  which 
the  management  of  the  public  business  may  occasion,  shall  also 
guard  against  any  wasteful  application  of  the  public  resources. 

It  must,  I  think,  be  allowed,  that  the  war,  which  has  pressed 
heavily  on  most  of  the  classes  of  the  community,  has  been  attended 
with  unlooked-for  benefits  to  the  Bank  ;  and  that  in  proportion  to 
the  increase  of  the  public  burdens  and  difficulties  have  been  the 
gains  of  that  body. 


INTRODUCTION 


394 


The  restriction  on  the  cash  payments  of  the  Bank,  which  was 
the  effect  of  the  war,  has  enabled  them  to  raise  the  amount  of  their 
notes  in  circulation  from  12  millions  to  28  millions;  whilst,  at  the 
same  time,  it  has  exonerated  them  from  all  necessity  of  keeping 
any  large  deposit  of  cash  and  bullion,  a  part  of  their  assets  from 
which  they  derive  no  profit. 

The  war,  too,  has  raised  the  unredeemed  public  debt,  of  which 
the  Bank  have  the  management,  from  220  to  830  millions ;  and, 
notwithstanding  the  reduced  rate  of  charge,  they  will  receive  for 
the  management  of  the  debt  alone,  in  the  present  year,  277,000/.,* 
whereas,  in  1792,  their  whole  receipt  on  account  of  the  debt  was 
99,800/. 

It  is  to  the  war  that  the  Bank  are  also  indebted  for  the  increase 
in  the  amount  of  public  deposits.  In  1792  these  deposits  were 
probably  less  than  4  millions.  In  and  since  1806  we  know  that 
they  have  generally  exceeded  11  millions. 

It  cannot,  I  think,  be  doubted,  that  all  the  services  which  the 
Bank  perform  for  the  public  could  be  performed  by  public  servants, 
and  in  public  offices  established  for  that  purpose,  at  a  reduction  or 
saving  of  expense  of  nearly  half  a  million  per  annum. 

In  1786  the  auditors  of  public  accounts  stated  it  as  their  opinion, 
that  the  public  debt,  then  amounting  to  224  millions,  could  be 
managed  by  Government  for  less  than  187/.  10s.  per  million.  On 
a  debt  of  830  millions  the  Bank  are  paid  340/.  per  million  on  600 
millions,  and  300/.  per  million  on  230  millions. 

Against  the  mode  in  which  the  public  business  is  managed  at  the 
Bank  no  complaint  can  be  justly  made  ;  ability,  regularity,  and 
precision,  are  to  be  found  in  every  office  ;  and  in  these  particulars 
it  is  not  probable  that  any  change  could  be  made  which  would  be 
deemed  an  improvement. 

As  far  as  the  public  are  bound  to  the  Bank  by  any  existing 
agreement,  an  objection  on  that  score  will  be  urged  against  any 
alteration.  Inadequate  as,  in  my  opinion,  was  at  that  time,  and 
under  the  circumstances  in  which  it  was  granted,  the  compensation 
which  the  public  received  from  the  Bank,  for  the  renewal  of  their 
charter,  I  shall  not  plead  for  a  revision  of  that  contract,  but  permit 
the  Bank  to  enjoy,  unmolested,  all  the  fruits  of  so  improvident  and 
unequal  a  bargain. 

But  the  agreement  entered  into  with  the  Bank  in  1808,  for  the 
management  of  the  national  debt,  is  not,  I  think,  of  the  above 
description,  and  either  party  is  now  at  liberty  to  annul  it.  The 
agreement  was  for  no  definite  period ;  and  has  no  necessary  con¬ 
nexion  with  the  duration  of  the  charter,  which  was  made  eight 
years  before  it.  Applying  to  the  state  of  things  existing  at  the 
time  of  its  formation,  or  such  a  state  as  might  be  expected  to  occur 
within  a  few  years,  it  is  not  any  longer  binding.  This  is  declared 


See  Appendix.  No.  111. 


TO  ECONOMICAL  CURRENCY. 


395 


in  the  following  passage  of  Mr  Perceval’s  letter  to  the  Bank,  dated 
the  15th  January  1808,  on  accepting  the  scale  in  respect  to  the 
rate  for  management  proposed  by  the  Bank.  “  Under  this  impres¬ 
sion,”  says  Mr  Perceval,  “I  am  strongly  inclined  to  give  way  to  the 
suggestion  of  the  Bank  in  the  minor  parts  of  the  arrangement,  and 
will  therefore  accede  to  the  scale  of  allowances  therein  proposed  for 
the  management  of  the  public  debt,  so  far  as  it  applies  to  present 
circumstances ,  or  to  such  as  can  he  expected  to  occur  within  any  short 
period.”  Eight  years  having  since  elapsed,  and  the  unredeemed 
debt  having,  in  that  time,  increased  280  millions,  can  it  be  justly 
contended  that  it  is  not  in  the  power  of  either  party,  now  or  here¬ 
after,  to  annul  this  agreement,  or  to  propose  such  alterations  in  it 
as  time  and  circumstances  may  render  expedient  ? 

To  Mr  Grenfell  I  am  very  materially  indebted  ;  I  have  done 
little  more  on  this  part  of  the  subject,  than  repeat  his  arguments 
and  statements.  1  have  endeavoured  to  give  my  feeble  aid  to  a 
cause  which  he  has  already  so  ably  advocated  in  parliament,  and 
in  which  I  trust  success  will  crown  his  future  efforts. 


PROPOSALS 


FOR  AN 


ECONOMICAL  AND  SECURE  CURRENCY. 


SECTION  I. 

Iti  the  Medium  of  Circulation — Cause  of  Uniformity  is  Cause  of  Goodness. 

All  writers  on  the  subject  of  money  have  agreed  that  uniformity 
in  the  value  of  the  circulating  medium  is  an  object  greatly  to  be 
desired.  Every  improvement,  therefore,  which  can  promote  an 
approximation  to  that  object,  by  diminishing  the  causes  of  varia¬ 
tion,  should  be  adopted.  No  plan  can  possibly  be  devised  which 
will  maintain  money  at  an  absolutely  uniform  value,  because  it  will 
always  be  subject  to  those  variations  to  which  the  commodity  itself 
is  subject,  which  has  been  fixed  upon  as  the  standard. 

While  the  precious  metals  continue  to  be  the  standard  of  our 
currency,  money  must  necessarily  undergo  the  same  variations  in 
value  as  those  metals.  It  was  the  comparative  steadiness  in  the 
value  of  the  precious  metals,  for  periods  of  some  duration,  which 
probably  was  the  cause  of  the  preference  given  to  them  in  all 
countries,  as  a  standard  by  which  to  measure  the  value  of  other 
tilings. 

A  currency  may  be  considered  as  perfect,  of  which  the  standard 
is  invariable,  which  always  conforms  to  that  standard,  and  in  the 
use  of  which  the  utmost  economy  is  practised. 

Amongst  the  advantages  of  a  paper  over  a  metallic  circulation, 
may  be  reckoned,  as  not  the  least,  the  facility  with  which  it  may 
be  altered  in  quantity,  as  the  wants  of  commerce  and  temporary 
circumstances  may  require  :  enabling  the  desirable  object  of  keep¬ 
ing  money  at  a  uniform  value  to  be,  as  far  as  it  is  otherwise 
practicable,  securely  and  cheaply  attained. 


398 


PROPOSALS  FOR  AN  ECONOMICAL 


The  quantity  of  metal,  employed  as  money,  in  effecting  the 
payments  of  any  particular  country,  using  metallic  money ;  or  the 
quantity  of  metal  for  which  paper  money  is  the  substitute,  if  paper 
money  be  partly  or  wholly  used,  must  depend  on  three  things : 
first,  on  its  value  ; — secondly,  on  the  amount  or  value  of  the  pay¬ 
ments  to  be  made ; — and,  thirdly,  on  the  degree  of  economy  prac¬ 
tised  in  effecting  those  payments. 

A  country  using  gold  as  its  standard  would  require,  at  least, 
fifteen  times  less  of  that  metal  than  it  would  of  silver,  if  using  silver, 
and  nine  hundred  times  less  than  it  would  of  copper,  if  using  that 
metal, — fifteen  to  one  being  about  the  proportion  which  gold  bears 
in  value  to  silver,  and  nine  hundred  to  one  the  proportion  which  it 
bears  to  copper.  If  the  denomination  of  a  pound  were  given  to  any 
specific  weight  of  these  metals,  fifteen  times  more  of  such  pounds 
would  be  required  in  the  one  case,  and  nine  hundred  times  more  in 
the  other,  whether  the  metals  themselves  were  employed  as  money, 
or  paper  was  partly,  or  entirely,  substituted  for  them.  And  if  a 
country  uniformly  employed  the  same  metal  as  a  standard,  the 
quantity  of  money  required  would  be  in  an  inverse  proportion  to 
the  value  of  that  metal.  Suppose  the  metal  to  be  silver,  and  that, 
from  the  difficulty  of  working  the  mines,  silver  should  be  doubled 
in  value, — half  the  quantity  only  would  then  be  wanted  for  money ; 
and  if  the  whole  business  of  circulation  were  carried  on  by  paper, 
of  which  the  standard  was  silver, — to  sustain  that  paper,  at  its 
bullion  value,  it  must  in  like  manner  be  reduced  one  half.  In  the 
same  way  it  might  be  shown,  that,  if  silver  became  as  cheap  again, 
compared  with  all  other  commodities,  double  the  quantity  would  be 
required  to  circulate  the  same  quantity  of  goods.  When  the  number 
of  transactions  increase  in  any  country  from  its  increasing  opulence 
and  industry — bullion  remaining  at  the  same  value,  and  the  economy 
in  the  use  of  money  also  continuing  unaltered — the  value  of  money 
w  ill  rise  on  account  of  the  increased  use  which  w  ill  be  made  of  it, 
and  will  continue  permanently  above  the  value  of  bullion,  unless 
the  quantity  be  increased,  either  by  the  addition  of  paper,  or  by 
procuring  bullion  to  be  coined  into  money.  There  will  be  more 
commodities  bought  and  sold,  but  at  lower  prices ;  so  that  the  same 
money  will  still  be  adequate  to  the  increased  number  of  transactions, 
by  passing  in  each  transaction  at  a  higher  value.  The  value  of 
money,  then,  does  not  wholly  depend  upon  its  absolute  quantity, 
but  on  its  quantity  relatively  to  the  payments  which  it  has  to 
accomplish  ;  and  the  same  effects  would  follow  from  either  of  two 
causes — from  increasing  the  uses  for  money  one  tenth — or  from 
diminishing  its  quantity  one  tenth  ;  for,  in  either  case,  its  value 
would  rise  one  tenth. 

It  is  the  rise  in  the  value  of  money  above  the  value  of  bullion 
which  is  always,  in  a  sound  state  of'  the  currency,  the  cause  of  its 
increase  in  quantity ;  for  it  is  at  these  times  that  either  an  opening 
is  made  for  the  issue  of  more  paper  money,  which  is  always  attended 


AND  SECURE  CURRENCY. 


399 


with  profit  to  the  issuers  ;  or  that  a  profit  is  made  by  carrying 
bullion  to  the  Mint  to  be  coined. 

To  say  that  money  is  more  valuable  than  bullion  or  the  standard, 
is  to  say  that  bullion  is  selling  in  the  market  under  the  Mint  price. 
It  can  therefore  be  purchased,  coined,  and  issued  as  money,  with  a 
profit  equal  to  the  difference  between  the  market  and  Mint  prices. 
The  Mint  price  of  gold  is  3/.  17s.  10gd.  If,  from  increasing 
opulence,  more  commodities  came  to  be  bought  and  sold,  the  first 
effect  would  be  that  the  value  of  money  would  rise.  Instead  of 
3/.  17s.  10gd.  of  coined  money  being  equal  in  value  to  an  ounce 
of  gold,  3 1.  15s.  might  be  equal  to  that  value  ;  and  therefore  a 
profit  of  2s.  10gd.  might  be  made  on  every  ounce  of  gold  that  was 
carried  to  the  Mint  to  be  coined.  This  profit,  however,  could  not 
long  continue  ;  for  the  quantity  of  money  which,  by  these  means, 
would  be  added  to  the  circulation,  -would  sink  its  value,  whilst  the 
diminishing  quantity  of  bullion  in  the  market  would  also  tend  to 
raise  the  value  of  bullion  to  that  of  coin  :  from  one  or  both  these 
causes  a  perfect  equality  in  their  value  could  not  fail  to  be  soon 
restored. 

It  appears,  then,  that,  if  the  increase  in  the  circulation  were 
supplied  by  means  of  coin,  the  value  both  of  bullion  and  money 
would,  for  a  time  at  least,  even  after  they  had  found  their  level,  be 
higher  than  before  ;  a  circumstance  which,  though  often  unavoidable, 
is  inconvenient,  as  it  affects  all  former  contracts.  This  incon¬ 
venience  is  wholly  got  rid  of,  by  the  issue  of  paper  money ;  for,  in 
that  case,  there  will  be  no  additional  demand  for  bullion ;  conse¬ 
quently  its  value  will  continue  unaltered  ;  and  the  new  paper  money, 
as  well  as  the  old,  will  conform  to  that  value. 

Besides,  then,  all  the  other  advantages  attending  the  use  of  paper 
money;  by  the  judicious  management  of  the  quantity,  a  degree  of 
uniformity,  which  is  by  no  other  means  attainable,  is  secured  to  the 
value  of  the  circulating  medium  in  which  all  payments  are  made. 

The  value  of  money  and  the  amount  of  payments  remaining  the 
same,  the  quantity  of  money  required  must  depend  on  the  degree 
of  economy  practised  in  the  use  of  it.  If  no  payments  were  made 
by  cheques  on  bankers,  by  means  of  which  money  is  merely  written 
off  one  account-and  added  to  another,  and  that  to  the  amount  of 
millions  daily,  with  few  or  no  bank  notes  or  coin  passing;  it  is 
obvious  that  considerably  more  currency  woidd  be  required,  or, 
which  is  the  same  in  its  effects,  the  same  money  would  pass  at  a 
greatly  increased  value,  and  would,  therefore,  be  adequate  to  the 
additional  amount  of  payments. 

Whenever  merchants,  then,  have  a  want  of  confidence  in  each 
other,  which  disinclines  them  to  deal  on  credit,  or  to  accept  in 
payment  each  other’s  cheques,  notes,  or  bills  :  more  money,  whether 
it  be  paper  or  metallic  money,  is  in  demand  ;  and  the  advantage  of 
a  paper  circulation,  when  established  on  correct  principles,  is,  that 
this  additional  quantity  can  be  presently  supplied  without  occasion- 


400 


PROrOSALS  FOR  AN  ECONOMICAL 


ing  any  variation  in  tlie  value  of  the  whole  currency,  either  as 
compared  with  bullion  or  with  any  other  commodity ;  whereas,  with 
a  system  of  metallic  currency,  this  additional  quantity  cannot  be  so 
readily  supplied,  and  when  it  is  finally  supplied,  the  whole  of  the 
currency,  as  well  as  bullion,  has  acquired  an  increased  value. 


SECTION  II. 

Use  of  a  Standard  Commodity — Objections  to  it  considered. 

During  the  late  discussions  on  the  bullion  question,  it  was  most 
justly  contended,  that  a  currency,  to  be  perfect,  should  be  absolutely 
invariable  in  value. 

But  it  was  said,  too,  that  ours  had  become  such  a  currency,  by 
the  Bank  restriction  bill ;  for  by  that  bill  Ave  had  wisely  discarded 
gold  and  silver  as  the  standard  of  our  money  ;  and,  in  fact,  that  a 
pound  note  did  not  and  ought  not  to  vary  with  a  given  quantity  of 
gold,  more  than  with  a  given  quantity  of  any  other  commodity. 
This  idea  of  a  currency  without  a  specific  standard  was,  I  believe, 
first  advanced  by  Sir  James  Steuart,*  but  no  one  has  yet  been 
able  to  offer  any  test  by  which  we  could  ascertain  the  uniformity 
in  the  value  of  a  money  so  constituted.  Those  who  supported 
this  opinion  did  not  see,  that  such  a  currency,  instead  of  being 
invariable,  was  subject  to  the  greatest  variations, — that  the  only  use 
of  a  standard  is  to  regulate  the  quantity,  and  by  the  quantity  the 
value  of  the  currency — and  that  without  a  standard  it  would  be 
exposed  to  all  the  fluctuations  to  which  the  ignorance  or  the  in¬ 
terests  of  the  issuers  might  subject  it. 

It  has  indeed  been  said  that  Ave  might  judge  of  its  value  by  its 
relation,  not  to  one,  but  to  the  mass  of  commodities.  If  it  should 
be  conceded,  which  it  cannot  be,  that  the  issuers  of  paper  money 
would  be  willing  to  regulate  the  amount  of  their  circulation  by  such 
a  test,  they  would  have  no  means  of  so  doing ;  for  wdien  we  consider 
that  commodities  are  continually  varying  in  value,  as  compared  with 
each  other ;  and  that  when  such  variation  takes  place,  it  is  impos¬ 
sible  to  ascertain  which  commodity  has  increased,  which  diminished 
in  value,  it  must  be  allowed  that  such  a  test  would  be  of  no  use 
whatever. 

Some  commodities  are  rising  in  value,  from  the  effects  of  taxation, 
from  the  scarcity  of  the  raw  material  of  which  they  are  made,  or 
from  any  other  cause  which  increases  the  difficulty  of  production. 
Others  again  are  falling,  from  improvements  in  machinery,  from  the 
better  division  of  labour,  and  the  improved  skill  of  the  workman  ; 

*  The  writings  of  Sir  James  Steuart  on  the  subject  of  coin  and  money  are  full  of 
instruction,  and  it  appears  surprising  that  he  could  have  adopted  the  above  opinion, 
which  is  so  directly  at  variance  with  the  general  principles  he  endeavoured  to  establish. 


AND  SECURE  CURRENCY. 


401 


from  the  greater  abundance  of  the  raw  material,  and  generally  from 
greater  facility  of  production.  To  determine  the  value  of  a  currency 
by  the  test  proposed,  it  would  be  necessary  to  compare  it  succes¬ 
sively  with  the  thousands  of  commodities  which  are  circulating  in 
the  community,  allowing  to  each  all  the  effects  which  may  have 
been  produced  upon  its  value  by  the  above  causes.  To  do  this  is 
evidently  impossible. 

To  suppose  that  such  a  test  would  be  of  use  in  practice,  arises 
from  a  misconception  of  the  difference  between  price  and  value. 

The  price  of  a  commodity  is  its  exchangeable  value  in  money 

only. 

The  value  of  a  commodity  is  estimated  by  the  quantity  of  other 
things  generally  for  which  it  will  exchange. 

The  price  of  a  commodity  may  rise  while  its  value  falls,  and  vice 
versa.  A  hat  may  rise  from  twenty  to  thirty  shillings  in  price,  but 
thirty  shillings  may  not  procure  so  much  tea,  sugar,  coffee,  and  all 
other  things,  as  twenty  shillings  did  before,  consequently  a  hat 
cannot  procure  so  much.  The  hat,  then,  has  fallen  in  value,  though 
it  has  increased  in  price. 

Nothing  is  so  easy  to  ascertain  as  a  variation  of  price,  nothing 
so  difficult  as  a  variation  of  value  ;  indeed,  without  an  invariable 
measure  of  value,  and  none  such  exists,  it  is  impossible  to  ascertain 
it  with  any  certainty  or  precision. 

A  hat  may  exchange  for  less  of  tea,  sugar,  and  coffee,  than  before, 
but,  at  the  same  time,  it  may  exchange  for  more  of  hardware,  Shoes, 
stockings,  &c.,  and  the  difference  of  the  comparative  value  of  these 
commodities  may  either  arise  from  a  stationary  value  of  one,  and  a 
rise,  though  in  different  degrees  of  the  other  two ;  or  a  stationary 
value  in  one,  and  a  fall  in  the  value  of  the  other  two ;  or  they  may 
have  all  varied  at  the  same  time. 

If  we  say  that  value  should  be  measured  by  the  enjoyments 
which  the  exchange  of  the  commodity  can  procure  for  its  owner, 
we  are  still  as  much  at  a  loss  as  ever  to  estimate  value,  because  two 
persons  may  derive  very  diffei'ent  degrees  of  enjoyment  from  the 
possession  of  the  same  commodity.  In  the  above  instance,  a  hat 
would  appear  to  have  fallen  in  value  to  him  whose  enjoyments 
consisted  in  tea,  coffee,  and  sugar ;  while  it  would  appear  to  have 
risen  in  value  to  him  who  preferred  shoes,  stockings,  and  hard¬ 
ware. 

Commodities  generally,  then,  can  never  become  a  standard  to 
regulate  the  quantity  and  value  of  money ;  and  although  some 
inconveniences  attend  the  standard  which  we  have  adopted,  namely, 
gold  and  silver,  from  the  variations  to  which  they  are  subject  as 
commodities,  these  are  trivial,  indeed,  compared  to  those  which  we 
should  have  to  bear  if  we  adopted  the  plan  recommended. 

A  hen  gold,  silver,  and  almost  all  other  commodities  were  raised 
in  price,  during  the  last  twenty  years,  instead  of  ascribing  any  part 
of  this  rise  to  the  fall  of  the  paper  currency,  the  supporters  of  an 


402 


proposals  for  an  economical 


abstract  currency  had  always  some  good  reason  at  hand  for  the 
alteration  in  price.  Gold  and  silver  rose  because  they  were  scarce, 
and  were  in  great  demand  to  pay  the  immense  armies  which  were 
then  embodied.  All  other  commodities  l’ose  because  they  were 
taxed  either  directly  or  indirectly,  or  because,  from  a  succession  of 
bad  seasons,  and  the  difficulties  of  importation,  corn  had  risen 
considerably  in  value,  which,  according  to  their  theory,  must 
necessarily  raise  the  price  of  commodities.  According  to  them,  the 
only  things  which  were  unalterable  in  value  were  bank  notes,  which 
were  therefore  eminently  well  calculated  to  measure  the  value  of 
all  other  things. 

If  the  rise  had  been  100  per  cent.,  it  might  equally  have  been 
denied  that  the  currency  had  anything  to  do  with  it,  and  it  might 
equally  have  been  ascribed  to  the  same  causes.  The  argument  is 
certainly  a  safe  one,  because  it  cannot  be  disproved.  When  two 
commodities  vary  in  relative  value,  it  is  impossible  with  certainty 
to  say  whether  the  one  rises  or  the  other  falls ;  so  that,  if  we  adopted 
a  currency  without  a  standard,  there  is  no  degree  of  depreciation  to 
which  it  might  not  be  carried.  The  depreciation  could  not  admit 
of  proof,  as  it  might  always  be  affirmed  that  commodities  had  risen 
in  value,  and  that  money  had  not  fallen. 


SECTION  III. 

The  Standard,  its  Imperfections — Variations  below  without  Allowance  of  the  counter¬ 
vailing  variations  above  the  Standard,  their  Effects — Correspondence  with  the 
Standard  the  Rule  for  Paper  Money. 

While  a  standard  is  used,  we  are  subject  to  only  such  a  variation 
in  the  value  of  money  as  the  standard  itself  is  subject  to;  but 
against  such  variation  thei’e  is  no  possible  remedy,  and  late  events 
have  proved  that,  during  periods  of  war,  when  gold  and  silver  are 
used  for  the  payment  of  large  armies  distant  from  home,  those 
variations  are  much  more  considerable  than  has  been  generally 
allowed.  This  admission  only  proves  that  gold  and  silver  are  not 
so  good  a  standard  as  they  have  been  hitherto  supposed, — that  they 
are  themselves  subject  to  greater  variations  than  it  is  desirable  a 
standard  should  be  subject  to.  They  are,  however,  the  best  with 
which  we  are  acquainted.  If  any  other  commodity  less  variable 
could  be  found,  it  might  very  properly  be  adopted  as  the  future 
standard  of  our  money,  provided  it  had  all  the  other  qualities  which 
fitted  it  for  that  purpose  ;  but,  while  these  metals  are  the  standard, 
the  currency  should  conform  in  value  to  them,  and  whenever  it 
does  not,  and  the  market  price  of  bullion  is  above  the  Mint  price, 
the  currency  is  depreciated.  This  proposition  is  unanswered,  and 
is  unanswerable. 

Much  inconvenience  arises  from  using  two  metals  as  the  standard 


AND  SECURE  CURRENCY. 


403 


of  our  money ;  and  it  has  long  been  a  disputed  point  whether  gold 
or  silver  should  by  law  be  made  tlic  principal  or  sole  standard  of 
money.  In  favour  of  gold  it  may  be  said,  that  its  greater  value 
under  a  smaller  bulk  eminently  qualifies  it  for  the  standard  in 
an  opulent  country;  but  this  very  quality  subjects  it  to  greater 
variations  of  value  during  periods  of  war  or  extensive  commercial 
discredit,  when  it  is  often  collected  and  hoarded,  and  may  be  urged 
as  an  argument  against  its  use.  The  only  objection  to  the  use  of 
silver  as  the  standard  is  its  bulk,  which  renders  it  unfit  for  the 
lar<re  payments  required  in  a  wealthy  country  ;  but  this  objection 
is  entirely  removed  by  the  substituting  of  paper  money  as  the 
general  circulation  medium  of  the  country.  Silver,  too,  is  much 
more  steady  in  its  value,  in  consequence  of  its  demand  and  supply 
being  more  regular ;  and  as  all  foreign  countries  regulate  the  value 
of  their  money  by  the  value  of  silver,  there  can  be  no  doubt  that, 
on  the  whole,  silver  is  preferable  to  gold  as  a  standard,  and  should 
be  permanently  adopted  for  that  purpose. 

A  better  system  of  currency  may,  perhaps,  be  imagined  than  that 
which  existed  before  the  late  laws  made  bank  notes  a  legal  tender ; 
but  while  the  law  recognised  a  standard,  while  the  Mint  was  open  to 
any  person  who  chose  to  take  thither  gold  and  silver  to  be  coined  into 
money,  there  was  no  other  limit  to  the  fall  in  the  value  of  money 
than  to  the  fall  in  the  value  of  the  precious  metals.  If  gold  had 
become  as  plentiful  and  as  cheap  as  copper,  bank  notes  would 
necessarily  have  partaken  of  the  same  depreciation,  and  all  persons, 
the  whole  of  whose  possessions  consisted  of  money — such  as  those 
who  hold  exchequer  bills,  who  discount  merchants’  bills,  or  whose 
income  is  derived  from  annuities,  as  the  holders  of  the  public  funds, 
mortgagees,  and  many  others — would  have  borne  all  the  evils  of 
such  a  depreciation.  With  what  justice,  then,  can  it  be  maintained, 
that  when  gold  and  silver  rise,  money  should  be  kept  by  force  and 
by  legislative  interference  at  its  former  value,  while  no  means  are, 
or  ever  have  been,  used  to  prevent  the  fall  of  money  when  gold  and 
silver  fall  ?  If  the  person  possessed  of  money  is  subject  to  all  the 
inconveniences  of  a  fall  in  the  value  of  his  property,  he  ought  also 
to  have  the  benefits  of  the  rise.  If  a  paper  currency  without  a 
standard  be  an  improvement,  let  it  be  proved  to  be  so,  and  then 
let  the  standard  be  disused  ;  but  do  not  preserve  it  to  the  disadvan¬ 
tage  solely,  never  to  the  advantage,  of  a  class  of  persons  possessed 
of  one  out  of  the  thousands  of  commodities  which  are  circulating 
in  the  community,  of  which  no  other  is  subject  to  any  such  rule. 

The  issuers  of  paper  money  should  regulate  their  issues  solely  by 
the  price  of  bullion,  and  never  by  the  quantity  of  their  paper  in 
circulation.  The  quantity  can  never  be  too  great  nor  too  little 
while  it  preserves  the  same  value  as  the  standard.  Money,  indeed, 
should  be  rather  more  valuable  than  bullion,  to  compensate  for  the 
trifling  delay  which  takes  place  before  it  is  returned  in  exchange 
for  bullion  at  the  Mint.  This  delay  is  equivalent  to  a  small 


404 


PROPOSALS  l'OR  AN  ECONOMICAL 


seignorage ;  and  coined  money,  or  bank  notes,  which  represent 
coined  money,  should  in  their  natural  and  perfect  state,  be  just  so 
much  more  valuable  than  bullion.  The  Bank  of  England,  by  not 
having  paid  a  due  regard  to  this  principle,  have  in  former  times 
been  considerable  losers.  They  supplied  the  country  with  all  the 
coined  money  for  which  it  had  occasion,  and,  consequently,  pur¬ 
chased  bullion  with  their  paper  that  they  might  carry  it  to  the 
Mint  to  be  coined.  If  their  paper  had  been  sustained  by  limiting 
its  quantity  at  a  value  somewhat  greater  than  bullion,  they  would, 
in  the  cheapness  of  their  purchases,  have  covered  all  the  expenses 
of  brokerage  and  refining,  including  the  just  equivalent  for  the 
delay  at  the  Mint. 


SECTION  IV. 

An  expedient  to  bring  tbe  English  currency  as  near  as  possible  to  perfection. 

In  the  next  session  of  Parliament,  the  subject  of  currency  is  again 
to  be  discussed ;  and,  probably,  a  time  will  then  be  fixed  for  the 
resumption  of  cash  payments,  which  will  oblige  the  Bank  to  limit 
the  quantity  of  their  paper  till  it  conforms  to  the  value  of  bullion. 

A  well  regulated  paper  currency  is  so  great  an  improvement  in 
commerce,  that  I  should  greatly  regret  if  prejudice  should  induce 
us  to  return  to  a  system  of  less  utility.  The  introduction  of  the 
precious  metals  for  the  purposes  of  money  may  with  truth  be  con¬ 
sidered  as  one  of  the  most  important  steps  towards  the  improvement 
of  commerce  and  the  arts  of  civilized  life  ;  but  it  is  no  less  true, 
that,  with  the  advancement  of  knowledge  and  science,  we  discover 
that  it  would  be  another  improvement  to  banish  them  again  from 
the  employment  to  which,  during  a  less  enlightened  period,  they 
had  been  so  advantageously  applied. 

If  the  Bank  should  be  again  called  upon  to  pay  their  notes  in 
specie,  the  effect  would  be  to  lessen  greatly  the  profits  of  the  Bank 
without  a  coi’respondent  gain  to  any  other  part  of  the  community. 
If  those  who  use  one  and  two,  and  even  five  pound  notes,  should 
have  their  option  of  using  guineas,  there  can  be  little  doubt  which 
they  would  prefer;  and  thus,  to  indulge  a  mere  caprice,  a  most 
expensive  medium  would  be  substituted  for  one  of  little  value. 

Besides  the  loss  to  the  Bank,  which  must  be  considered  as  a  loss  ) 
to  the  community,  general  wealth  being  made  up  of  individual 
riches,  the  state  would  be  subjected  to  the  useless  expense  of  coinage, 
and,  on  every  fall  of  the  exchange,  guineas  would  be  melted  and 
exported. 

To  secure  the  public  against  any  other  variations  in  the  value  of 
the  currency  than  those  to  w  hich  the  standard  itself  is  subject, 
and,  at  the  same  time,  to  carry  on  the  circulation  with  a  medium 


AND  SECURE  CURRENCY. 


405 


the  least  expensive,  is  to  attain  the  most  perfect  state  to  which  a 
currency  can  be  brought,  and  we  should  possess  all  these  advantages 
by  subjecting  the  Bank  to  the  delivery  of  uncoined  gold  or  silver 
at  the  Mint  standard  and  price,  in  exchange  for  their  notes,  instead 
of  the  delivery  of  guineas;  by  which  means  paper  would  never  fall 
below  the  value  of  bullion  without  being  followed  by  a  reduction 
of  its  quantity.  To  prevent  the  rise  of  paper  above  the  value  of 
bullion,  the  Bank  should  be  also  obliged  to  give  their  paper  in  ex¬ 
change  for  standard  gold  at  the  price  of  3 l.  17s.  per  ounce.  Not 
to  give  too  much  trouble  to  the  Bank,  the  quantity  of  gold  to  be 
demanded  in  exchange  for  paper  at  the  Mint  price  of  3/.  17s.  l(Hd., 
or  the  quantity  to  be  sold  to  the  Bank  at  3 1.  17s.,  should  never  be 
less  than  twenty  ounces.  In  other  words,  the  Bank  should  be 
obliged  to  purchase  any  quantity  of  gold  that  was  offered  them,  not 
less  than  twenty  ounces,  at  3^.  17s.*  per  ounce,  and  to  sell  any 
quantity  that  might  be  demanded  at  31.  17s.  10^d.  AVhile  they 
have  the  power  of  regulating  the  quantity  of  their  paper,  there  is 
no  possible  inconvenience  that  could  result  to  them  from  such  a 
regulation. 

The  most  perfect  liberty  should  be  given,  at  the  same  time,  to 
export  or  import  every  description  of  bullion.  These  transactions 
in  bullion  would  be  very  few  in  number,  if  the  Bank  regulated 
their  loans  and  issues  of  paper  by  the  criterion  which  I  have  so 
often  mentioned,  namely,  the  price  of  standard  bullion,  without 
attending  to  the  absolute  quantity  of  paper  in  circulation.! 

The  object  which  I  have  in  view  would  be  in  a  great  measure 
attained,  if  the  Bank  were  obliged  to  deliver  uncoined  bullion  in 
exchange  for  their  notes  at  the  Mint  price  and  standard ;  though 
they  were  not  under  the  necessity  of  purchasing  any  quantity  of 
bullion  offered  them  at  the  prices  to  be  fixed,  particularly  if  the 
Mint  were  to  continue  open  to  the  public  for  the  coinage  of  money  : 
for  that  regulation  is  merely  suggested  to  prevent  the  value  of 
money  from  varying  from  the  value  of  bullion  more  than  the  trifling 
difference  between  the  prices  at  which  the  Bank  should  buy  and 
sell,  and  which  would  be  an  approximation  to  that  uniformity  in 
its  value  which  is  acknowledged  to  be  so  desirable. 


*  The  price  of  3l.  17s.  here  mentioned,  is,  of  course,  an  arbitrary  price.  There 
might  be  good  reason,  perhaps,  for  fixing  it  either  a  little  above,  or  a  little  below.  In 
naming  3/.  17s.,  I  wish  only  to  elucidate  the  principle.  The  price  ought  to  be  so  fixed 
as  to  make  it  the  interest  of  the  seller  of  gold  rather  to  sell  it  to  the  Bank  than  to 
carry  it  to  the  Mint  to  be  coined. 

The  same  remark  applies  to  the  specified  quantity  of  twenty  ounces.  There  might 
be  good  reason  for  making  it  ten  or  thirty. 

t  I  have  already  observed  that  silver  appears  to  me  to  be  best  adapted  for  the 
standard  of  our  money.  If  it  were  made  so  by  law,  the  Bank  should  be  obliged  to 
buy  or  sell  silver  bullion  only.  If  gold  be  exclusively  the  standard,  the  Bank  should 
be  required  to  buy  or  sell  gold  only ;  but  if  both  metals  be  retained  as  the  standard, 
as  they  now  by  law  are,  the  Bank  should  have  the  option  which  of  the  two  metals 
they  would  give  in  exchange  for  their  notes,  and  a  price  should  be  fixed  for  silver 
rather  under  the  standard,  at  which  thev  should  not  be  at  liberty  to  refuse  to  purchase. 


406 


PROPOSALS  FOR  AN  ECONOMICAL 


If  the  Bank  capriciously  limited  the  quantity  of  their  paper,  thev 
■would  raise  its  value ;  and  gold  might  appear  to  fall  below  the 
limits  at  -which  I  propose  the  Bank  should  purchase.  Gold,  in 
that  case,  might  be  carried  to  the  Mint,  and  the  money  returned 
from  thence  being  added  to  the  circulation,  would  have  the  effect 
of  lowering  its  value,  and  making  it  again  conform  to  the  standard ; 
but  it  would  neither  be  done  so  safely,  so  economically,  nor  so 
expeditiously,  as  by  the  means  which  I  have  proposed  ;  against 
which  the  Bank  can  have  no  objection  to  offer,  as  it  is  for  then- 
interest  to  furnish  the  circulation  with  paper,  rather  than  oblige 
others  to  furnish  it  with  coin. 

Under  such  a  system,  and  with  a  currency  so  regulated,  the 
Bank  would  never  be  liable  to  any  embarrassments  whatever, 
excepting  on  those  extraordinary  occasions,  when  a  general  panic 
seizes  the  country,  and  when  every  one  is  desirous  of  possessing 
the  precious  metals  as  the  most  convenient  mode  of  realizing  or 
concealing  his  property.  Against  such  panics,  Banks  have  no 
security,  on  any  system ;  from  their  very  nature  they  are  subject  to 
them,  as  at  no  time  can  there  be  in  a  Bank,  or  in  a  country,  so 
much  specie  or  bullion  as  the  monied  individuals  of  such  countrv 
have  a  right  to  demand.  •  Should  every  man  withdraw  his  balance 
from  his  banker  on  the  same  day,  many  times  the  quantity  of  bank 
notes  now  in  circulation  would  be  insufficient  to  answer  such  a 
demand.  A  panic  of  this  kind  was  the  cause  of  the  crisis  in  1797  ; 
and  not,  as  has  been  supposed,  the  large  advances  which  the  Bank 
had  then  made  to  Government.  Neither  the  Bank  nor  Govern¬ 
ment  were  at  that  time  to  blame  ;  it  was  the  contagion  of  the 
unfounded  fears  of  the  timid  part  of  the  community,  which 
occasioned  the  run  on  the  Bank,  and  it  would  equally  have  taken 
place  if  they  had  not  made  any  advances  to  Government,  and  had 
possessed  twice  their  present  capital.  If  the  Bank  had  continued 
paying  in  cash,  probably  the  panic  would  have  subsided  before 
their  coin  had  been  exhausted. 

With  the  known  opinion  of  the  Bank  Directors  as  to  the  rule  for 
issuing  paper  money,  they  may  be  said  to  have  exercised  then- 
powers  without  any  great  indiscretion.  It  is  evident  that  they  have 
followed  their  own  principle  with  extreme  caution.  In  the  present 
state  of  the  law,  they  have  the  power,  without  any  control  whatever, 
of  increasing  or  reducing  the  circulation  in  any  degree  they  may 
think  proper ;  a  power  which  should  neither  be  intrusted  to  the 
State  itself  nor  to  any  body  in  it,  as  there  can  be  no  security  for 
the  uniformity  in  the  value  of  the  currency  when  its  augmentation 
or  diminution  depends  solely  on  the  will  of  the  issuers.  That  the 
Bank  have  the  power  of  reducing  the  circulation  to  the  very 
narrowest  limits  will  not  be  denied,  even  by  those  who  agree  in 
opinion  with  the  Directors,  that  they  have  not  the  power  of  adding 
indefinitely  to  its  quantity.  Though  I  am  fully  assured  that  it  is 
both  against  the  interest  and  the  wish  of  the  Bank  to  exercise  this 


AN1)  SECURE  CURRENCY. 


407 


power  to  the  detriment  of  the  public,  yet  when  I  contemplate  the 
evil  consequences  which  might  ensue  from  a  sudden  and  great 
reduction  of  the  circulation,  as  well  as  from  a  great  addition  to  it, 
1  cannot  but  deprecate  the  facility  with  which  the  State  has  armed 
the  Bank  with  so  formidable  a  prerogative. 

The  inconvenience  to  which  country  banks  were  subjected  before 
the  restriction  on  cash  payments,  must  at  times  have  been  very 
great.  At  all  periods  of  alarm,  or  of  expected  alarm,  they  must 
have  been  under  the  necessity  of  providing  themselves  with  guineas, 
that  they  might  be  prepared  for  every  exigency  which  might  occur. 
Guineas  on  these  occasions  were  obtained  at  the  Bank  in  exchange 
for  the  larger  notes,  and  were  conveyed  by  some  confidential  agent, 
at  expense  and  risk,  to  the  country  bank.  After  performing  the 
offices  to  which  they  were  destined,  they  found  their  way  again  to 
London,  and  in  all  probability  were  again  lodged  in  the  Bank, 
provided  they  had  not  suffered  such  a  loss  of  weight  as  to  reduce 
them  below  the  legal  standard. 

If  the  plan  now  proposed,  of  paying  bank  notes  in  bullion,  be 
adopted,  it  would  be  necessary  either  to  extend  the  same  privilege 
to  country  banks,  or  to  make  bank  notes  a  legal  tender,  in  which 
latter  case  there  would  be  no  alteration  in  the  law  respecting 
country  banks,  as  they  would  be  required,  precisely  as  they  now 
are,  to  pay  their  notes  when  demanded  in  Bank  of  England  notes. 

The  saving  which  would  take  place  from  not  submitting  the 
guineas  to  the  loss  of  weight  from  the  friction  which  they  must 
undergo  in  their  repeated  journeys,  as  well  as  of  the  expenses  of 
conveyance,  would  be  considerable ;  but  by  far  the  greatest  advan¬ 
tage  would  result  from  the  permanent  supply  of  the  country,  as 
well  as  of  the  London  circulation,  as  far  as  the  smaller  payments 
are  concerned,  being  provided  in  the  very  cheap  medium,  paper, 
instead  of  the  very  valuable  medium,  gold,  thereby  enabling  the 
country  to  <Wive  all  the  profit  which  may  be  obtained  by  the 
productive  employment  of  a  capital  to  that  amount.  We  should 
surely  not  be  justified  in  rejecting  so  decided  a  benefit,  unless  some 
specific  inconvenience  could  be  pointed  out  as  likely  to  follow  from 
adopting  the  cheaper  medium. 

Much  has  been  ably  written  on  the  benefits  resulting  to  a  country 
from  the  liberty  of  trade,  leaving  every  man  to  employ  his  talents 
and  capital  as  to  him  may  seem  best,  unshackled  by  restrictions  of 
every  kind.  The  reasoning  by  which  the  liberty  of  trade  is  sup¬ 
ported  is  so  powerful,  that  it  is  daily  obtaining  converts.  It  is  with 
pleasure  that  I  see  the  progress  which  this  great  principle  is  making 
amongst  those  whom  we  should  have  expected  to  cling  the  longest 
to  old  prejudices.  In  the  petitions  to  Parliament  agaiust  the  corn 
bill,  the  advantages  of  an  unrestricted  trade  were  generally  recog¬ 
nised,  but  by  none  more  ably  than  by  the  clothiers  of  Gloucestershire, 
who  were  so  convinced  of  the  impolicy  of  restriction,  that  they 
expressed  a  willingness  to  relinquish  every  restraint  which  might 


408 


PROPOSALS  FOR  AN  ECONOMICAL 


be  found  to  attach  to  their  trade.  These  are  principles  which  can¬ 
not  be  too  widely  extended,  nor  too  generally  adopted  in  practice ; 
but  if  foreign  nations  are  not  sufficiently  enlightened  to  adopt  this 
liberal  system,  and  should  continue  their  prohibitions  and  excessive 
duties  on  the  importation  of  our  commodities  and  manufactures,  let 
England  set  them  a  good  example  by  benefiting  hei'self ;  and 
instead  of  meeting  their  prohibitions  by  similar  exclusions,  let  her 
get  rid  as  soon  as  she  can  of  every  vestige  of  so  absurd  and  hurtful 
a  policy. 

The  pecuniary  advantage  which  would  be  the  result  of  such  a 
system  would  soon  incline  other  states  to  adopt  the  same  course, 
and  no  long  period  would  elapse  before  the  general  prosperity  would 
be  seen  to  be  best  promoted  by  each  country  falling  naturally  into 
the  most  advantageous  employment  of  its  capital,  talents,  and 
industry. 

Advantageous,  however,  as  the  liberty  of  trade  would  prove,  it 
must  be  admitted  that  there  are  a  few,  and  a  very  few  exceptions  to  it, 
where  the  interference  of  Government  may  be  beneficially  exerted. 
Monsieur  Say,  in  his  able  work  on  Political  Economy,  after  showing 
the  advantages  of  a  free  trade,  observes,*  that  the  interference  of 
Government  is  justifiable  only  in  two  cases  ;  first,  to  prevent  a 
fraud,  and  secondly,  to  certify  a  fact.  In  the  examinations  to  which 
medical  practitioners  are  obliged  to  submit,  there  is  no  improper 
interference  ;  for  it  is  necessary  to  the  welfare  of  the  people,  that 
the  fact  of  their  having  acquired  a  certain  portion  of  knowledge 
respecting  the  diseases  of  the  human  frame  should  be  ascertained 
and  certified.  The  same  may  be  said  of  the  stamp  which  Govern¬ 
ment  puts  on  plate  and  money  ;  it  thereby  prevents  fraud,  and  saves 
the  necessity  of  having  recourse  on  each  purchase  and  sale  to  a 
difficult  chemical  process.  In  examining  the-  purity  of  drugs  sold 
by  chemists  and  apothecaries,  the  same  object  is  had  in  view.  In 
all  these  cases,  the  purchasers  are  not  supposed  to  have,  or  to  be 
able  to  acquire,  sufficient  knowledge  to  guard  them  against  decep¬ 
tion  ;  and  Government  interferes  to  do  that  for  them  which  they 
could  not  do  for  themselves. 

But  if  the  public  require  protection  against  the  inferior  money 
which  might  be  imposed  upon  them  by  an  undue  mixture  of  alloy, 
and  which  is  obtained  by  means  of  the  Government  stamp  when 
metallic  money  is  used ;  how  much  more  necessary  is  such  protec¬ 
tion  when  paper-money  forms  the  whole,  or  almost  the  whole,  of 
the  circulating  medium  of  the  country  ?  Is  it  not  inconsistent,  that 
Government  should  use  its  power  to  protect  the  community  from 
the  loss  of  one  shilling  in  a  guinea,  but  does  not  interfere  to  protect 
them  from  the  loss  of  the  whole  twenty  shillings  in  a  one-pound 
note  ?  In  the  case  of  Bank  of  England  notes,  a  guarantee  is  taken 
by  the  Government  for  the  notes  which  the  Bank  issue ;  and  the 


Economie  Politique,  livre  i.  chap.  17. 


AND  SECURE  CURRENCY. 


409 


whole  capital  of  the  Bank,  amounting  to  more  than  11^  millions, 
must  be  lost  before  the  holders  of  their  notes  can  be  sufferers  from 
any  imprudence  they  may  commit.  Why  is  not  the  same  principle 
followed  with  respect  to  the  country  banks  ?  What  objection  can 
there  be  against  requiring  of  those  who  take  upon  themselves  the 
office  of  furnishing  the  public  with  a  circulating  medium,  to  deposit 
with  Government  an  adequate  security  for  the  due  performance  of 
their  engagements  ?  In  the  use  of  money,  every  one  is  a  trader  ; 
those  whose  habits  and  pursuits  are  little  suited  to  explore  the 
mechanism  of  trade  are  obliged  to  make  use  of  money,  and  are  no 
way  qualified  to  ascertain  the  solidity  of  the  different  banks  whose 
paper  is  in  circulation;  accordingly,  we  find  that  men  living  on 
limited  incomes,  women,  labourers,  and  mechanics  of  all  descriptions, 
are  often  severe  sufferers  by  the  failures  of  country  banks,  which 
have  lately  become  frequent  beyond  all  former  example.  Though 
I  am  by  no  means  disposed  to  judge  uncharitably  of  those  who  have 
occasioned  so  much  ruin  and  distress  to  the  middle  and  lower  classes 
of  the  people,  yet,  it  must  be  allowed  by  the  most  indulgent,  that 
the  true  business  of  banking  must  be  very  much  abused  before  it 
can  be  necessary  for  any  bank,  possessing  the  most  moderate  funds, 
to  fail  in  their  engagements  ;  and  I  believe  it  will  be  found,  in  by 
far  the  major  part  of  these  failures,  that  the  parties  can  be  charged 
with  offences  much  more  grave  than  those  of  mere  imprudence  and 
want  of  caution. 

Against  this  inconvenience  the  public  should  be  protected,  by 
requiring  of  every  country  bank  to  deposit  with  Government,  or 
with  commissioners  appointed  for  that  purpose,  funded  property  or 
other  Government  security,  in  some  proportion  to  the  amount  of 
their  issues. 

Into  the  details  of  such  a  plan  it  is  not  necessary  to  enter  very 
minutely.  Stamps  for  the  issue  of  notes  might  be  delivered  on  the 
required  deposit  being  made,  and  certain  periods  in  the  year  might 
be  fixed  upon,  wdien  the  whole  or  any  part  of  the  security  should  be 
returned,  on  proof  being  given,  either  by  the  return  of  the  cancelled 
stamps,  or  by  any  other  satisfactory  means,  that  the  notes  for  which 
it  was  given  w'ere  no  longer  in  circulation. 

Against  such  a  regulation  no  country  bank  of  respectability  would 
object ;  on  the  contrary,  it  would,  in  all  probability,  be  most 
acceptable  to  them,  as  it  would  prevent  the  competition  of  those 
who  are  at  present  so  little  entitled  to  appear  in  the  market  against 
them. 


410 


PROPOSALS  FOR  AN  ECONOMICAL 


SECTION  Y. 

A  Practice  which  creates  a  great  Mass  of  Mercantile  Inconvenience — Remedy 

proposed. 

After  all  the  improvements,  however,  that  can  be  made  in  our 
system  of  currency,  there  will  yet  be  a  temporary  inconvenience  to 
which  the  public  will  be  subject,  as  they  have  hitherto  been,  from 
the  large  quarterly  payment  of  dividends  to  the  public  creditors, — 
an  inconvenience  which  is  often  severely  felt,  and  to  which,  1  think, 
an  easy  remedy  might  be  applied. 

The  national  debt  has  become  so  large,  and  the  interest  which  is 
paid  quarterly  upon  it  is  so  great  a  sum,  that  the  mere  collecting 
the  money  from  the  receivers  general  of  the  taxes,  and  the  conse¬ 
quent  reduction  of  the  quantity  in  circulation,  just  previously  to  its 
being  paid  to  the  public  creditor  in  January ,  April ,  July ,  and 
October,  occasions,  for  a  week  or  more,  the  most  distressing  want 
of  circulating  medium.  The  Bank,  by  judicious  management,  dis¬ 
counting  bills  probably  very  freely,  just  at  the  time  that  these 
monies  are  paid  into  the  Exchequer,  and  arranging  for  the  receipt 
of  large  sums  immediately  after  the  payment  of  the  dividends, 
have,  no  doubt,  considerably  lessened  the  inconvenience  to  the 
mercantile  part  of  the  community.  Nevertheless,  it  is  well  known 
to  those  who  are  acquainted  with  the  money  market  that  the 
distress  for  money  is  extreme  at  the  periods  I  have  mentioned. 
Exchequer  bills,  which  usually  sell  at  a  premium  of  five  shillings 
per  100/.,  are  at  such  times  at  so  great  a  discount  that,  by  the 
purchase  of  them  then,  and  the  re-sale  when  the  dividends  are 
paid,  a  profit  may  often  be  made  equal  to  the  rate  of  15  to 
20  per  cent,  interest  for  money.  At  these  times,  too,  the  differ¬ 
ence  between  the  price  of  stock  for  ready  money,  and  the  price 
for  a  week  or  two  to  come,  affords  a  profit,  to  those  who  can 
advance  money,  even  greater  than  can  be  made  by  employing 
money  in  the  purchase  of  exchequer  bills.  This  great  distress  for 
money  is  frequentlv,  after  the  dividends  are  paid,  followed  by  as 
great  a  plenty,  so  that  little  use  can  for  some  time  be  made  of  it. 

The  very  great  perfection  to  which  our  system  of  economizing 
the  use  of  money  has  arrived,  by  the  various  operations  of  banking, 
rather  aggravates  the  peculiar  evil  of  which  I  am  speaking ;  because, 
Avhen  the  quantity  of  circulation  is  reduced,  in  consequence  of  the 
improvements  which  have  been  adopted  in  the  means  of  effecting 
our  payments,  the  abstraction  of  a  million  or  two  from  that  reduced 
circulation  becomes  much  more  serious  in  its  effects,  being  so  much 
larger  a  proportion  of  the  whole  circulation. 

On  the  inconvenience  to  which  trade  and  commerce  are  exposed 
by  this  periodical  distress  for  money,  I  should  think  no  difference 


AND  SECURE  CURRENCY. 


411 


of  opinion  can  possibly  exist.  The  same  unanimity  may  not  pre- 
Nail  Nvith  respect  to  the  remedy  which  I  shall  now  propose. 

Let  the  Bank  be  authorised  by  Government  to  deliver  the 
dividend  warrants  to  the  proprietors  of  stock  a  few  days  before. 
the  receivers  general  are  required  to  pay  their  balances  into  the 
Exchequer. 

Let  these  warrants  be  payable  to  the  bearer  exactly  in  the  same 
manner  as  they  now  are. 

Let  the  day  for  the  payment  of  these  dividend  warrants  in  bank 
notes  be  regulated  precisely  as  it  now  is. 

If  the  day  of  payment  could  be  named  on  or  before  the  delivery 
of  the  warrants,  it  would  be  more  convenient. 

Finally,  let  these  warrants  be  receivable  into  the  Exchequer 
from  the  receivers  general,  or  from  any  other  person  who  may  have 
payments  to  make  there,  in  the  same  manner  as  bank  notes,  the 
persons  paying  them  allowing  the  discount  for  the  number  of  days 
which  will  elapse  before  they  become  due. 

If  a  plan  of  this  sort  Nvere  adopted,  there  could  never  be  any 
particular  scarcity  of  monej7  before  the  payment  of  the  dividends, 
nor  any  particular  plenty  of  it  after.  The  quantity  of  money  in 
circulation  would  be  neither  increased  nor  diminished  by  the  pay¬ 
ment  of  the  dividends.  A  great  part  of  these  warrants  would, 
from  the  stimulus  of  private  interest,  infallibly  find  their  way  into 
the  hands  of  those  nvIio  had  public  payments  to  make,  and  from 
them  to  the  Exchequer.  Thus,  then,  would  a  great  part  of  the 
payments  to  Government,  and  the  payments  from  Government  to 
the  public  creditor,  be  effected  without  the  intervention  of  either 
bank  notes  or  money,  and  the  demands  for  money  for  such  pur¬ 
poses,  which  are  now  so  severely  felt  by  the  mercantile  classes, 
would  be  effectually  prevented. 

Those  who  are  well  acquainted  with  the  economical  system  now 
adopted  in  London  throughout  the  Nvhole  banking  concern,  will 
readilv  understand  that  the  plan  here  proposed  is  merely  the 
extension  of  this  economical  system  to  a  species  of  payments  to 
which  it  has  not  yet  been  applied.  To  them  it  will  be  unnecessary 
to  say  anything  further  in  recommendation  of  a  plan,  with  the 
advantages  of  which  in  other  concerns  they  are  already  so  familiar. 


SECTION  VI. 

The  public  services  of  the  Bank  excessively  overpaid — Remedy  proposed. 

Mr  Grenfell  has  lately  called  the  attention  of  Parliament  to  a 
subject  of  importance  to  the  financial  interests  of  the  community. 
At  a  time  when  taxes  bear  so  heavily  on  the  people,  brought  upon 
them  by  the  unexampled  difficulties  and  expenses  of  the  war,  a 


412 


PROPOSALS  FOR  AN  ECONOMICAL 


resource  so  obvious  as  that  which  lie  has  pointed  out  will  surely  not 
be  neglected. 

It  appears  by  the  documents  which  Mr  Grenfell’s  motions  have 
produced,  that  the  Bank  have,  for  many  years,  on  an  average,  had 
no  less  a  sum  of  the  public  money  in  their  hands,  on  which  they 
have  obtained  an  interest  of  5  per  cent.,  than  11  millions;  and  the 
only  compensation  which  the  public  have  derived  for  the  advantage 
which  the  Bank  have  so  long  enjoyed  is  a  loan  of  3  millions  from 
1806  to  1814,  a  period  of  eight  years,  at  an  interest  of  3  per  cent., 
— and  a  farther  loan  of  3  millions,  without  interest,  which  the  Bank, 
in  1808,  agreed  to  afford  the  public  till  six  months  after  the  defi¬ 
nitive  treaty  of  peace,  and  which  by  an  act  of  last  session  was 
continued  without  interest  till  April  1816  From  1806  to  1816,  a 
period  of  ten  years,  the  Bank  have  gained  5  per  cent,  per  annum 
on  11,000,000^.,  which  will  amount  to  .  .  £5, 500,000 

During  the  same  time,  the  public  have  received  the  following  com¬ 
pensation  : — the  difference  between  3  per  cent,  and  5  per  cent, 
interest,  or  2  per  cent,  per  annum  on  3,000,000/.  for  eight 
years,  or  ......  £480,000 

From  1808  to  1816,  the  public  will  have  had  the  advantage  of  a 
loan  of  3,000,000/.  without  interest,  which  a*  5  per  cent,  per 
annum  would  amount  in  eight  years  to  .  .  1,200,000 

-  1,680,000 

Balance  gained  by  the  Bank,  .  .  .  £3,820,000 

3,820,000Z.  will  have  been  gained  by  the  Bank  in  ten  years,  or 
382,000Z.  per  annum,  for  acting  as  bankers  to  the  public,  when, 
perhaps,  the  whole  expense  attending  this  department  of  their 
business  does  not  exceed  10,00(F.  per  annum. 

In  1807,  when  these  advantages  were  first  noticed  by  a  committee 
of  the  House  of  Commons,  it  was  contended  by  many  persons,  in 
favour  of  the  Bank,  and  by  Mr  Thornton,  one  of  the  directors,  who 
had  been  governor,  that  the  gains  of  the  Bank  were  in  proportion 
to  the  amount  of  their  notes  in  circulation,  and  that  no  advantage 
was  derived  from  the  public  deposits  further  than  as  they  enabled 
the  Bank  to  maintain  a  larger  amount  of  notes  in  circulation.  This 
fallacy  was  completely  exposed  by  the  committee. 

If  Mr  Thornton’s  argument  were  correct,  no  advantage  whatever 
would  have  resulted  to  the  Bank  from  the  deposits  of  the  public 
money — for  those  deposits  do  not  enable  them  to  maintain  a  larger 
amount  of  notes  in  circulation. 

Suppose  that,  before  the  Bank  had  any  of  the  public  deposits, 
the  amount  of  their  notes  in  circulation  were  25  millions,  and  that 
they  derived  a  profit  by  such  circulation.  Suppose,  now,  that 
Government  received  10  millions  for  taxes  in  bank  notes,  and 
deposited  them  permanently  with  the  Bank.  The  circulation 
would  be  immediately  reduced  to  15  millions,  but  the  profits  of  the 
Bank  would  be  precisely  the  same  as  before ;  though  15  millions  only 
were  then  in  circulation,  the  Bank  would  obtain  a  profit  on  25  mil- 


AND  SECURE  CURRENCY. 


413 


Hons.  If,  now,  they  again  raise  the  circulation  to  25  millions  by 
employing  the  10  millions  in  discounting  bills,  purchasing  exchequer 
bills,  or  advancing  the  payments  on  the  loan  for  the  year  for  the 
holders  of  scrip  receipts,  will  they  not  have  added  the  interest  of 
10  millions  to  their  usual  profits,  although  they  should  at  no 
time  have  raised  their  circulation  above  the  original  sum  of  25 
millions. 

That  the  increase  in  the  amount  of  public  deposits  should  enable 
the  Bank  to  add  to  the  amount  of  their  notes  in  circulation,  is  neither 
supported  by  theory  nor  experience.  If  we  attend  to  the  progress 
of  these  deposits  we  shall  observe,  that  at  no  time  did  they  increase 
so  much  as  from  1800  to  1806,  during  which  time  there  was  no 
increase  in  the  circulation  of  notes  of  5/.  and  upwards ;  but,  from 
1807  to  1815,  when  there  was  no  increase  whatever  in  the  amount 
of  public  deposits,  the  amount  of  notes  of  hi.  and  upwards  had 
increased  5  millions. 

Nothing  can  be  more  satisfactory  on  the  subject  of  the  profits  of 
the  Bank,  from  the  public  deposits,  than  the  report  of  the  committee 
on  public  expenditure,  in  1807.  It  is  as  follows : — 

u  In  the  evidence  upon  this  part  of  the  subject,  it  is  admitted  that 
the  notes  of  the  Bank  are  productive  of  profit ;  but  it  appears  to  be 
assumed  that  the  Government  balances  are  only  so  in  proportion  as 
they  tend  to  augment  the  amount  of  notes  ;  whereas  your  committee 
are  fully  persuaded  that  both  balances  and  notes  are  and  must 
necessarily  be  productive. 

“  The  funds  of  the  Bank,  which  are  the  sources  of  profit,  and 
which  constitute  the  measure  of  the  sum  which  they  have  to  lend 
(subject  only  to  a  deduction  on  account  of  cash  and  bullion)  may 
be  classed  under  three  heads. 

“  First ,  The  sum  received  from  their  proprietors  as  capital,  to¬ 
gether  with  the  savings  which  have  been  added  to  it. 

“  Secondly ,  The  sum  received  from  persons  keeping  cash  at  the 
Bank.  This  sum  consists  of  the  balances  of  the  deposit  accounts, 
both  of  Government  and  of  individuals.  In  1797,  this  fund,  includ¬ 
ing  all  the  balances  of  individuals,  was  only  5,130,140/.  The 
present  Government  balances  alone  have  been  stated  already  at 
between  11  and  12  millions,  including  bank  notes  deposited  in  the 
Exchequer.* 

“  Thirdly, The  sum  received  in  return  for  notes  put  into  circulation. 
A  correspondent  value  for  every  note  must  originally  have  been 
given,  and  the  value  thus  given  for  notes  constitutes  one  part  of  the 
general  fund  to  be  lent  at  interest.  A  note-holder,  indeed,  does  not 

*  By  sonic  of  my  readers  the  words  “  including  bank  notes  deposited  in  the  Ex¬ 
chequer”  may  not  be  understood.  They  are  bank  notes  never  put  into  circulation  ; 
neither  are  they  included  in  any  return  made  by  the  Bank.  They  are  called  at  the 
Exchequer  special  notes,  and  are  mere  vouchers  (not  having  even  the  form  of  bank 
notes)  of  the  payment  to  the  Bank  from  the  Exchequer  of  such  monies  as  are  daily 
received  at  the  latter  office.  They  are  the  record,  therefore,  of  a  part  of  the  public 
deposits  lodged  with  the  Bank. 


414 


PROPOSALS  FOR  AN  ECONOMICAL 


differ  essentially  from  a  person  to  whom  a  balance  is  due.  Both  are 
creditors  of  the  Bank  ;  the  one  lidding  a  note,  which  is  the  evidence 
of  the  debt  due  to  him,  the  other  having  the  evidence  of  an  entry  in 
the  ledger  of  the  Bank.  The  sum  at  all  times  running  at  interest  will 
he  in  exact  proportion  to  the  amount  of  these  three  funds  combined , 
deduction  being  made  for  the  value  of  cash  and  bullion.'’* 

Every  word  of  this  statement  appears  to  me  unanswerable,  and 
the  principle  laid  down  by  the  committee  would  afford  us  an  infallible 
clue  to  ascertain  the  net  profits  of  the  Bank,  if  we  knew  the  amount 
of  their  savings, — their  cash  and  bullion,  and  their  annual  expenses, 
as  well  as  the  other  particulars,  are  known  to  us. 

It  will  be  seen  by  the  above  extract,  that  in  1807  the  amount  of 
the  public  deposits  was  between  11  and  12  millions,  whereas,  in 
1797  the  amount  of  public  and  private  deposits  were,  together,  only 
equal  to  5,130,140/.  In  consequence  of  this  report  Mr  Perceval 
applied  to  the  Bank,  on  the  part  of  the  public,  for  a  participation  in 
their  additional  profits  from  this  source,  either  in  the  way  of  an 
annual  payment  or  as  a  loan  of  money  without  interest ;  and,  after 
some  negociation,  a  loan  of  3  millions  was  obtained  without  interest, 
payable  six  months  after  a  definitive  treaty  of  peace. 

The  same  report  also  notices  the  exorbitant  allowance  which  was 
made  to  the  Bank  for  the  management  of  the  national  debt.  The 
public  paid  the  Bank  at  that  time  at  the  rate  of  450/.  per  million 
for  management ;  and  it  was  stated  by  the  committee,  that  the 
additional  allowance  for  management  in  the  ten  years  ending  in 
1807,  in  consequence  of  the  increase  of  the  debt,  was  more  than 
155,000/.,  whilst  the  “whole  increase  of  the  officers  who  actually 
transact  the  business,  in  the  last  eleven  years,  is  only  137,  whose 
annual  expense  may  be  from  18,449/.  to  23,290/.,  the  addition  to 
the  other  permanent  charges  being  probably  about  one-half  or  two- 
thirds  of  that  sum.” 

After  this  report,  a  new  agreement  was  made  with  the  Bank  for 
the  management  of  the  public  debt. 

450/.  per  million  was  to  be  paid  if  the  unredeemed  capital 
exceeded  300  millions,  but  fell  below  400  millions. 

340/.  per  million  if  the  capital  exceeded  400  millions,  but  fell 
below  600  millions. 

300/.  per  million  on  such  part  of  the  public  debt  as  exceeded 
600  millions. 


*  In  1 797  the  Bank  stated  their  finances  to  he  as  follows  : — 

Bank-notes  in  circulation,  ......  £8,640,000 

Public  and  private  deposits,  .  .  .  .  .  .  5,132,140 

Surplus  capital,  .....  ...  3,826,890 


£17,597,030 

On  the  other  side  of  the  account  they  showed  m  what  securities  these  funds  were 
invested,  and,  with  the  exception  of  cash  and  bullion,  and  a  small  sum  for  stamps, 
they  were  all  yielding  interest  and  profit  to  the  Bank. 


AND  SECURE  CURRENCY. 


415 


Besides  these  allowances,  the  Bank  are  paid  800k  per  million  for 
receiving  contributions  on  loans ;  1000/.  on  each  contract  for 
lotteries  ;  and  1250/.  per  million,  or  ^th  per  cent.,  for  receiving 
contributions  on  the  profits  arising  from  property,  professions,  and 
trades.  This  agreement  has  been  in  force  ever  since. 

As  the  period  is  now  approaching  when  the  affairs  of  the  Bank 
will  undergo  the  consideration  of  .Parliament,  and  when  the  agree- 
ment which  regards  the  public  deposits  will  expire,  by  the  payment  of 
the  3  millions  borrowed  of  the  Bank  without  interest,  in  1808;  no 
time  can  be  more  proper  than  the  present  to  point  out  the  undue 
advantages  which  were  given  to  the  Bank  in  the  terms  settled 
between  them  and  Mr  Perceval  in  1808.  This,  1  apprehend,  was 
the  chief  object  of  Mr  Grenfell,  for  it  is  not  alone  to  the  additional 
advantages  which  the  Bank  have  obtained  since  the  agreement  in 
1808  that  he  wishes  to  call  the  attention  of  Parliament,  but  also  to 
that  agreement  itself,  under  which  the  public  are  now  paying,  and 
have  long  paid,  in  one  shape  or  another,  enormous  sums  for  very 
inadequate  services. 

Mr  Grenfell  probably  thinks,  and  if  he  does  I  most  heartily 
concur  with  him,  that  a  profit  of  382,000/.  per  annum,  which  is  the 
sum  at  which  the  advantages  of  the  public  deposits  to  the  Bank, 
for  a  period  of  ten  years,  may  be  calculated,  as  will  be  seen,  page 
412,  very  far  exceeds  the  just  compensation  which  the  public  ought 
to  pay  to  the  Bank  for  doing  the  mere  business  of  bankers  ;  parti¬ 
cularly  when,  in  addition  to  this  sum,  300,000/.  per  annum  is  now 
also  paid  for  the  management  of  the  national  debt,  loans,  &c.;-when, 
moreover,  the  Bank  have  been  enjoying,  ever  since  the  renewal  of 
their  charter,  immense  additional  profits,  from  the  substitution  of 
paper  money  in  lieu  of  a  currency  consisting  partly  of  metallic  and 
partly  of  paper  money,  which  additional  profits  were  not  in  con¬ 
templation,  either  of  Parliament  which  granted,  or  of  the  Bank 
which  obtained  that  charter,  when  the  bargain  was  made  in  1800, 
and  of  which  they  might  be  in  a  great  measure  deprived  by  the 
repeal  of  the  bill  which  restricts  them  from  paying  their  notes  in 
specie.  Under  these  circumstances  it  must,  I  think,  be  allowed, 
that  in  1808  Mr  Perceval  by  no  means  obtained  for  the  public  what 
they  had  a  right  to  expect;  and  it  is  to  be  hoped  that,  with  the 
known  sentiments  of  the  Chancellor  of  the  Exchequer  as  to  the 
right  of  the  public  to  participate  in  the  additional  advantages  of 
the  Bank  arising  from  public  deposits,  terms  more  consonant  with 
the  public  interest  will  now  be  insisted  on. 

It  is  true  that  the  above  sums,  though  paid  by  the  public,  are 
not  the  net  profits  of  the  Bank  ;  from  them  a  deduction  must  be 
made  for  the  expenses  of  that  part  of  the  Bank  establishment  which 
is  exclusively  appropriated  to  the  public  business  ;  but  those 
expenses  do  not  probably  exceed  150,000/.  per  annum. 

The  committee  on  public  expenditure  stated  in  their  report  to 
the  House  of  Commons  in  1807,  “  that  the  number  of  clerks 


416 


PROPOSALS  FOR  AN  ECONOMICAL 


employed  by  the  Bank  exclusively  or  principally  in  the  public 
business,  was 

In  1786,  .  .  243 

1796,  .  .  313 

1807,  .  .  450 

whose  salaries,  it  is  presumed,  may  be  calculated  at  an  average  of 
between  120/.  and  170/.  for  each  clerk  :  taking-  them  at  135/., 
which  exceeds  the  average  of  those  employed  in  the  South  Sea 
House,  the  sum  is  .  .  .  £60,750 

At  150/.,  the  sum  is  ...  67,500 

At  170/.,  the  sum  is  ...  76,500 

Either  of  which  two  last  sums  would  be  sufficient  to  provide  a 
superannuation  fund. 

“  The  very  moderate  salaries,”  the  report  continues,  “  received  by 
the  governor,  deputy  governor,  and  directors,  amount  to  £8000 
“  Incidental  expenses  may  be  estimated  at  about  .  15,000 

“  Building  additional  and  repairs,  at  about  .  .  10,000 

“  Law  expenses  and  loss  by  frauds,  forgeries,  at  about  10,000 


£43,000 

“  Add  the  largest  estimate  for  clerks,  .  .  .  76,500 

Total,  £119,500” 

Allowing,  then,  the  very  highest  computation  of  the  committee, 
the  expense  of  managing  the  public  business  in  1807,  including  the 
whole  of  the  salaries  of  the  directors,  incidental  expenses,  additional 
buildings  and  repairs,  together  with  law  expenses  and  loss  by  frauds 
and  forgeries,  amounted  to  119,500/. 

The  committee  also  stated,  that  the  increased  expenses  of  the 
Bank  for  managing  the  public  business,  after  a  period  of  eleven 
years,  from  1796  to  1807,  were  about  35,000/.  per  annum,  on  an 
increased  debt  of  278  millions,  being  at  the  rate  of  126/.  per  million. 
From  1807  to  the  present  time  the  unredeemed  debt  managed  by 
the  Bank  has  increased  from  about  550  millions  to  about  830  millions, 
or  about  280  millions, — little  more  than  from  1796  tol807,and  there¬ 
fore  at  the  same  rate  of  126/.  per  million,  would  be  attended  with  a 
similar  expense  of  35,000/. :  but,  “  as  the  rate  of  expense  diminishes 
as  the  scale  of  business  enlarges,”  I  shall  estimate  it  at  30,500/., 
which,  added  to  119,500/.,  the  expenses  of  1807,  will  make  the  whole 
expense  of  managing  the  public  business  amount  to  150,000/.  The 
auditors  of  public  accounts  in  1786  estimated  that  187/.  10s.  per 
million  was  sufficient  to  pay  the  expenses  of  managing  a  debt  of 
224  millions.  The  estimate  which  I  have  just  made  is  about  180/. 
per  million,  on  a  debt  of  830  millions,  which  will  appear  an  ample 
allowance  when  it  is  considered  in  what  different  proportions  the 
debt  itself  increases,  compared  with  the  work  which  it  occasions. 

(Supposing,  then,  the  expenses  to  be  about  150,000/.,  the  net 


AND  SECURE  CURRENCY. 


417 


profits  obtained  by  the  Bank  by  all  its  transactions  with  the  public 
this  year  will  be  as  follows  : — 

Charge  for  managing  the  national  debt  for  one  year,  ending  the 
\st  February  1816,  *  .....  £254,000 

For  receiving  contributions  on  loans,  at  800/.  per 


million,  on  36  millions,  .....  28,800 

Ditto,  lotteries,  ......  2,000 

Average  profits  on  public  deposits,!  •  .  .  382,000 

Allowance  for  receiving  property  tax,  .  .  3,480 


£670,280 

Expenses  attending  the  management  of  public  business,  150,000 

Net  profits  of  the  Bank  paid  by  the  public,  .  £520,280 

Of  this  vast  sum,  372,000/.  probably  arises  from  the  deposits 
alone,  an  expense  which  might  almost  wholly  be  saved  to  the  nation, 
if  Government  were  to  take  the  management  of  that  concern  into 
their  own  hands,  by  having  a  common  treasury,  on  which  each 
department  should  draw,  in  the  same  manner  as  they  now  do  on 
the  Bank  of  England,  investing  the  11  millions,  which  appears  to 
be  the  average  deposits  in  exchequer  bills,  a  part  of  which  might 
he  sold  in  the  market,  if  any  unforeseen  circumstances  should  reduce 
the  deposits  below  that  sum. 

The  resolutions,!  proposed  by  Mr  Grenfell,  and  on  which  Parlia¬ 
ment  will  decide  the  next  session,  after  briefly  recapitulating  the 
facts  contained  in  the  documents  which  his  motions  have  produced, 
conclude  thus : — u  That  this  House  will  take  into  early  considera¬ 
tion  the  advantages  derived  by  the  Bank,  as  well  from  the  manage¬ 
ment  of  the  national  debt,  as  from  the  amount  of  balances  of 
public  money  remaining  in  their  hands,  with  the  view  to  the 
adoption  of  such  an  arrangement,  when  the  engagements  now 
subsisting  shall  have  expired,  as  may  be  consistent  with  what  is 
due  to  the  interest  of  the  public,  and  the  rights,  credit,  and  stability 
of  the  Bank  of  England.” 

Mr  Mellish,  the  governor  of  the  Bank,  has  also  proposed  reso¬ 
lutions  to  be  submitted  to  Parliament  next  session.  These  resolutions§ 
admit  all  the  facts  stated  by  Mr  Grenfell’s ;  they  mention  also  one 
or  two  trifling  services  which  the  Bank  perform  for  the  public,  one 
without  charge,  ||  and  another  at  a  less  charge  than  is  incurred  by 

*  This  charge  is  calculated  on  the  debt  as  it  stood  in  February  1815 :  more  than  75 
millions  have  been  added  since.  See  Appendix. 

t  See  page  412. 

t  See  Appendix.  §  See  Appendix. 

||  The  one  without  charge  is  the  calculating  the  deduction  from  each  dividend 
warrant  for  property  tax. 

The  other  is  receiving  contributions  from  those  who  pay  their  property  tax  into  ths 
Rank,  for  which  the  Bank  receives  1,250/.  per  million,  or  one-eighth  per  cent. 

J  f  the  collector  had  gone  frem  house  to  house  to  receive  this  money,  he  would  have 

D  D 


418 


PROPOSALS  FOR  AN  ECONOMICAL 


employing  the  ordinary  collector  of  taxes.  But  the  8th  and  9th 
resolutions  advance  an  extraordinary  pretension, — they  appear  to 
question  whether  on  the  expiration  of  the  loan  o/'  8,000,000/.  in  181(5, 
Government  will  he  at  liberty  before  1833,  the  time  when  the 
charter  will  expire,  to  demand  any  compensation  whatever  from  the 
Bank  for  the  advantages  they  derive  from  the  public  deposits,  or  to 
make  any  new  arrangement  respecting  the  charge  for  management 
of  the  national  debt.  These  resolutions  are  as  follows  : 

8th.  “That  by  the  39  and  40  Geo.  3.  c.  28.  s.  13,  it  is  enacted, 
‘  That  during  the  continuance  of  the  charter,  the  Bank  shall  enjoy 
all  privileges,  profits,  emoluments,  benefits,  and  advantages  what¬ 
soever,  which  they  now  possess  and  enjoy  by  virtue  of  any  employ¬ 
ment  by  or  on  behalf  of  the  public. 

“  That  previously  to  such  renewal  of  their  charter,  the  Bank  was 
employed  as  the  public  banker,  in  keeping  the  cash  of  all  the 
principal  departments  in  the  receipt  of  the  public  revenue,  and  in 
issuing  and  conducting  the  public  expenditure,  &c. 

9th.  “  That  whenever  the  engagements  now  subsisting  between 
the  public  and  the  Bank  shall  expire,  it  may  be  proper  to  consider 
the  advantages  derived  by  the  Bank  from  its  transactions  with  the 
public,  with  a  view  to  the  adoption  of  such  arrangements  as  may  be 
consistent  with  those  principles  of  equity  and  good  faith,  which 
ought  to  prevail  in  all  transactions  between  the  public  and  the 
Bank  of  England.’”* 

O 


had  an  allowance  of  five  pence  per  pound,  which  would  have  cost  the  public  58,007/. 
instead  of  3,480/.  paid  to  the  Bank. 

Perhaps  no  part  of  the  business  of  the  Bank  is  more  easily  transacted  than  this 
which  they  have  pointed  out.  Instead  of  being  under-paid,  it  appears  to  me  to  be 
paid  most  liberally. 

The  saving  to  the  public  is  really  effected  by  the  money  being  brought  to  one  focus, 
instead  of  being  collected  from  various  quarters.  The  Bank  appear  to  consider  the 
rule,  by  which  they  are  to  measure  the  moderation  of  their  charges,  to  be  the  saving 
which  they  effect  to  their  employer,  rather  than  the  just  compensation  for  their  own 
trouble  and  expense.  What  would  they  think  of  an  engineer,  if  in  his  charge  for 
the  construction  of  a  steam-engine  lie  should  be  guided  by  the  value  of  the  labour 
which  the  engine  was  calculated  to  save,  and  not  by  the  value  of  the  labour  and 
materials  necessary  to  its  construction. 

*  Since  the  first  edition  of  this  work  was  published,  the  first  Lord  of  the  Treasury, 
and  the  Chancellor  of  the  Exchequer,  have  proposed  to  the  Bank  that  they  shall  con¬ 
tinue  the  advance  of  3  millions,  which  would  have  been  due  in  April  next,  for  two 
years  without  interest : — and  further,  that  the  Bank  shall  advance  the  sum  of  6  millions 
at  4  per  cent,  for  two  years  certain,  and  shall  continue  the  same  for  three  years 
longer  from  such  period,  subject  to  repayment  upon  six  months’  notice,  to  be  given  at 
any  time  between  the  10th  October  in  any  year  and  the  5th  of  April  following,  either 
by  the  Lords  of  the  Treasury  to  the  Bank,  or  by  the  Bank  to  their  Lordships.  This 
proposal  was  agreed  to  by  a  General  Court  of  Proprietors  of  Bank  Stock,  held,  on  the 
8th  of  February,  for  the  purpose  of  considering  the  same. 

At  this  general  court,  on  asking  for  some  explanation  respecting  the  deposit  of  the 
public  money  at  the  end  of  the  two  years,  I  noticed  with  approbation  the  departure  of 
the  Bank  from  the  claim  which  they  had  set  up  in  the  above  resolutions,  in  which 
they  appeared  to  me  to  assert  the  right  of  the  Bank  to  the  custody  of  the  public  money 
without  paying  any  remuneration  whatever ;  to  which  the  governor  of  the  Bank,  Mr 
Mellish,  replied,  that  1  had  totally  misconceived  the  meaning  of  those  resolutions,  and 
he  was  sure  if  1  read  them  again  with  attention,  I  should  be  convinced  that  no  such 


AND  SECURE  CURRENCY. 


419 


That  the  Bank  should  now  for  the  first  time  intimate  that  their 
charter  precludes  the  public  from  making  any  demand  on  the 
Bank  for  a  participation  in  the  advantages  arising  from  the  public 
deposits,  after  all  that  has  passed  since  1800  on  that  subject,  does 
indeed  appear  surprising. 

The  charter  of  the  Bank  was  renewed  in  1800  for  twenty-one 
years,  from  its  expiration  in  1812  ;  consequently  it  will  not  now 
terminate  till  1833.  But  since  1800,  so  far  from  the  Bank  asserting 
any  such  claim  of  right  to  the  whole  advantages  of  the  public 
deposits,  they  in  1806  lent  Government  3,000,000/.  till  1814,  at 
3  per  cent,  interest,  and  in  1808  they  lent  3,000,000/.  more  till  the 
termination  of  the  war,  without  interest,  and  in  the  last  session  of 
Parliament  the  loan  of  3,000,000/.  was  continued  without  interest 
till  April  1816.  These  loans  were  expressly  granted,  in  considera¬ 
tion  of  the  increase  in  the  amount  of  the  public  deposits. 

The  committee  on  public  expenditure,  in  their  report  (1807),  to 
which  I  have  already  referred,  speaking  of  the  loan  of  3,000,000/.  to 
the  public  in  1806,  at  3  per  cent,  interest,  observe,  “  But  the 
transaction  is  most  material  in  another  view,  as  it  evinces  that  the 
agreement  made  in  1800  was  not  considered  either  by  those  who 
acted  on  the  part  of  the  public,  or  by  the  Bank  Directors  themselves, 
as  a  bar  against  further  participation,  whenever  the  increase  of  their 
profits  derived  from  the  public,  and  the  circumstances  of  public 
affairs,  might,  upon  similar  principles,  make  such  a  claim  reasonable 
and  expedient .”  And  what  is  Mr  Perceval’s  language  at  the  same 
period,  when,  in  consequence  of  this  report,  he  applied  for  and 
obtained  a  loan  of  3,000,000/.  till  the  end  of  the  war?  In  his  letter 
to  the  governor  and  deputy  governor  of  the  Bank,  dated  the  lltli 
of  January  1808,  he  says,  “I  think  it  necessary  to  observe,  that 
the  proposal  to  confine  the  duration  of  the  advance,  by  way  of 
loan,  or  of  the  annual  payment  into  the  Exchequer,  to  the  period 
of  the  present  war,  and  twelve  months  after  the  termination  of  it, 
is  by  no  means  to  be  understood  as  an  admission  on  my  part  that, 
at  the  expiration  of  such  period,  the  public  will  no  longer  be 
entitled  to  look  to  any  advantage  from  the  continuance  of  such 
deposits ;  but  simply  as  a  provision  by  which  the  Government  and 
the  Bank  may  be  respectively  enabled,  under  the  change  in  the 
state  of  affairs  which  will  then  have  taken  place,  probably  affecting 
the  amount  of  public  balances  in  the  hands  of  the  latter,  to  consider 
of  a  new  arrangement.”  On  the  19th  of  January ,  Mr  Perceval's 
proposals  were  submitted  to  the  Court  of  Directors  in  a  more 


construction  could  be  put  on  them.  I  am  glad  the  Bank  disclaim  having  had  the 
intention  of  depriving  the  public  of  the  advantage  which  they  have  enjoyed  since  the 
report  of  the  Committee  on  Public  Expenditure ;  though  I  regret,  that  they  have 
expressed  themselves  so  obscurely,  as  to  have  given  me  and  many  others  a  different 
impression.  The  resolutions  still  appear  to  me  to  assert  that  the  privilege  of  being 
public  banker  was  for  a  valuable  consideration  secured  to  the  Bank  during  the  con 
tinuance  of  their  charter,  and  that  at  the  expiration  of  that  engagement,  and  net 
before,  it  might  be  proper  to  consider  of  a  new  arrangement. 


420 


proposals  for  an  economical 


official  form, — they  conclude  thus  :  “  And  it  is  understood  that 
during  the  continuance  of  this  advance  by  the  Bank,  no  alteration  is 
to  be  proposed  in  the  general  course  of  business  between  the  Bank 
and  the  Exchequer,  nor  any  regulation  introduced  by  which  the 
accounts,  now  by  law  directed  to  be  kept  at  the  Bank,  shall  be 
withdrawn  from  thence.”  These  proposals  were  recommended  for 
acceptance  by  the  Court  of  Directors  to  the  Court  of  Proprietors, 
and  were,  without  comment,  agreed  to  on  the  21st  of  January. 

Mr  Vansittart,  in  his  application  to  the  Bank  in  November  1814, 
relative  to  continuing  the  loan  of  3,000,000/.,  which  would  have 
become  due  on  the  17th  of  December  following,  till  April  1816, 
uses  these  words :  “  But  I  beg  to  be  distinctly  understood  as  not 
departing  from  the  reservation  made  by  the  late  Mr  Perceval,  in 
his  letter  to  the  governor  and  deputy  governor  of  the  Bank,  of  the 
11th  January  1808,  by  which  he  guarded  against  the  possibility  of 
any  misconstruction  which  could  preclude  the  public,  after  the 
expiration  of  the  period  of  the  loan  then  agreed  upon,  from  asserting 
its  title  to  future  advantage  from  the  continuance  or  increase  of 
such  deposits, — and  as  adhering  generally  to  the  principles  main¬ 
tained  by  Mr  Perceval,  in  the  discussion  which  then  took  place.” 

No  comment  whatever  appears  to  have  been  made  by  the  Bank 
on  these  observations :  a  General  Court  of  Proprietors  was  called, 
and  the  loan  of  3  millions  was  continued  till  April  1816. 

It  surely  will  not  come  with  a  very  good  grace  now  from  the 
Bank,  to  insist  that  the  agreement  of  1800  precludes  the  public 
from  demanding  any  compensation  for  the  advantages  which  the 
Bank  have  derived  from  the  increase  of  the  public  deposits  since 
that  period,  when,  on  so  many  occasions,  the  l  ight  of  participation 
has  been  so  expressly  claimed  on  the  part  of  Government,  and 
acceded  to  by  the  Court  of  Directors. 

In  addition  to  these  strong  facts,  by  a  reference  to  the  basis  on 
which  the  agreement  for  the  renewal  of  the  charter  was  founded, 
as  detailed  by  Mr  Thornton  in  his  evidence  before  the  committee 
of  public  expenditure  in  1807,*  it  will  still  further  appear  that  the 
Bank  have  no  claim  whatever  to  shelter  themselves  under  their 
charter,  in  refusing  to  let  the  public  participate  in  the  profits  which 
have  accrued  from  the  augmentation  of  the  public  deposits. 

It  must  be  recollected  that  Mr  Thornton  was,  in  1800,  the 
governor  of  the  Bank,—- that  he  was  the  negotiator,  on  the  part  of 
the  Bank,  with  Mr  Pitt,  for  the  renewal  of  the  charter, — and  that, 
in  fact,  the  idea  of  renewing  the  charter  so  long  before  its  expiration 
originated  with  him.  Mr  Thornton  told  the  committee,  that  the 
only  sums  of  public  money  on  which  the  Bank  derived  profit,  and 
which  were  referred  to  by  him  and  Mr  Pitt,  with  a  view  to  settle 
the  compensation  which  the  public  should  receive  for  prolonging 
the  exclusive  privileges  of  the  Bank,  were  those  lodged  at  th» 
Bank  for  the  payment  of  the  growing  dividends,  and  for  the 

*  Report,  page  104. 


AND  SECURE  CURRENCY. 


421 


quarterly  issues  to  the  commissioners  for  the  redemption  of  the 
national  debt. 

The  first  of  these  sums  Mr  Thornton  estimates  to  be  on  an 
average  .....  £2,500,000* 

And  it  appears  by  an  account  lately  produced  that 

the  second  amounted  to  .  .  015,842 

£3,115,842 

Mr  Thornton  expressly  states,  that  all  other  public  accounts 
were  of  trifling  amount,  and  “  the  probable  augmentation  of  the 
balances  of  public  money  from  the  various  departments  of  Govern¬ 
ment  was  not  taken  into  the  account,” — u  that  such  augmentation 
was  neither  adverted  to  nor  provided  for.” 

If,  then,  it  is  acknowledged  by  the  very  negotiator  on  the  part 
of  the  Bank  that  the  probable  augmentation  of  the  public  balances 
formed  no  part  of  the  consideration  in  settling  the  pecuniary  re¬ 
muneration  which  was  given  to  the  public  for  continuing  to  the 
Bank  their  exclusive  privileges,  how  can  it  now,  with  any  justice, 
be  contended  by  the  Bank,  that  the  profits  derived  from  those 
augmented  balances,  which  were  “  neither  adverted  to  nor  provided 
for,”  belong  of  right  exclusively  to  the  Bank,  and  that  the  public 
have  no  claim  either  to  participate  in  them,  or  to  withdraw  the 
balances  to  any  use  to  which  they  may  think  proper  to  apply 
them. 

It  is  to  be  observed  that  Mr  Thornton,  in  his  evidence  before 
alluded  to,  represented  all  the  other  public  accounts,  excepting  the 
two  before  mentioned,  as  of  trifling  amount ;  but,  by  accounts 
which  were  last  session  presented  to  Parliament,  it  appears  that  in 
1800,  the  year  to  which  Mr  Thornton’s  evidence  refers,  when  the 
charter  was  renewed,  the  public  balances  of  all  descriptions  deposited 
with  the  Bank  amounted  to  6,200,000/.,  exceeding  the  aggregate 
amount  stated  by  Mr  Thornton  by  3  millions,  which  he  would,  if 
he  had  been  aware  of  this  fact,  hardly  have  called  “  a  trifling 
amount.” 

If,  then,  the  fact  of  this  large  additional  deposit  did  not  come 
under  the  consideration  of  Mr  Thornton  and  Mr  Pitt,  at  the  time 
of  renewing  the  charter, — if  no  part  of  the  remuneration  which  the 
public  then  received  was  founded  on  this  fact,  the  large  amount  of 
public  deposits  in  1800,  so  far  from  entitling  the  Bank  to  retain  the 
whole  profits  arising  from  the  still  larger  deposits  at  the  present 
period,  binds  them  in  justice  to  be  particularly  liberal  in  any  new 
engagement  they  may  now  make  with  the  public,  as  affording  a 
remuneration  for  a  profit  so  long  enjoyed,  which,  it  is  to  be  pre¬ 
sumed,  they  would  not  have  been  allowed  to  enjoy,  if  the  facts  had 

*  By  an  account  laid  before  Parliament  last  session  it  appears,  that  the  amount  of 
exchequer  hills  and  bank  notes  deposited  with  the  Exchequer  as  cash,  amounted,  ou 
au  average  of  the  year  ending  Marc /■  1800,  to  3  090,000/. 


‘122 


ruorosALS  for  an  economical 


been  clearly  known  and  considered  at  the  time  of  settling  the 
terms  on  which  the  charter  was  renewed. 

But,  whether  known  or  not  known,  must  have  been  of  little 
consequence  in  Mr  Thornton’s  estimation,  -whose  opinion,  that  the 
profits  of  the  Bank  were  not  increased  by  the  augmentation  of  tbe 
public  balances,  otherwise  than  as  they  contributed  to  increase  the 
amount  of  bank  notes  in  circulation,  is  so  emphatically  given. 

Is  it  not  lamentable  to  view  a  great  and  opulent  body  like  the 
Bank  of  England  exhibiting  a  wish  to  augment  their  hoards  by 
undue  gains  wrested  from  the  hands  of  an  overburthened  people  ? 
Ought  it  not  rather  to  have  been  expected  that  gratitude  for  their 
charter,  and  the  unlooked-for  advantages  with  which  it  has  been 
attended, — for  the  bonuses  and  increased  dividends  which  they 
have  already  shared,  and  for  the  great  undivided  treasure  which  it 
has  further  enabled  them  to  accumulate,  would  have  induced  the 
Bank  voluntarily  to  relinquish  to  the  State  the  whole  benefit  which 
is  derived  from  the  employment  of  11  millions  of  the  public  money, 
instead  of  manifesting  a  wish  to  deprive  them  of  the  small  portion 
of  it  which  they  have  for  a  few  years  enjoyed  ? 

When  the  rate  of  charge  for  the  management  of  the  national 
debt  was  under  discussion,  in  1807,  Mr  Thornton  said  “that,  in  a 
matter  between  the  public  and  the  Bank,  he  was  sure  nothing  but 
a  fair  compensation  for  trouble,  risk,  and  actual  losses,  and  the  great 
responsibility  that  attaches  to  the  office,  would  be  required.” 

How  comes  it  that  the  language  of  the  Directors  of  the  present 
day  is  so  much  changed  ?  Instead  of  expecting  only  a  fair  com¬ 
pensation  for  trouble,  risk,  and  actual  losses,  they  endeavour  to 
deprive  the  public  even  of  the  inadequate  compensation  which  they 
have  hitherto  received,  and  appeal  now,  for  the  first  time,  to  their 
charter  for  their  right  to  hold  the  public  money,  and  to  enjoy  all 
the  profit  which  can  be  derived  from  its  use,  without  allowing  the 
least  remuneration  to  the  public. 

If  the  charter  were  as  binding  as  the  Bank  contend  for,  a  great 
public  company,  possessing  so  advantageous  a  monopoly,  and  so 
intimately  connected  with  the  State,  might  be  expected  to  act  on 
a  more  liberal  policy  towards  its  generous  benefactors. 

Till  the  last  session  of  Parliament,  the  Bank  were  also  particularly 
favoured  in  the  composition  which  they  paid  for  stamp  duties.  In 
1791,  they  paid  a  composition  of  12,000/.  per  annum,  in  lieu  of  all 
stamps  either  on  bills  or  notes.  In  1799,  on  an  increase  of  the 
stamp-duty,  this  composition  was  advanced  to  20,000/.,  and  an 
addition  of  4,000/.,  raising  the  whole  to  24,000/.,  was  made  for  the 
duty  on  notes  under  5/.,  which  the  Bank  had  then  begun  to 
circulate.  In  1804,  an  addition  of  not  less  than  50  per  cent,  was 
made  to  the  stamp-duty  imposed  by  the  act  of  1799  on  notes  under 
5/.,  and  a  considerable  increase  on  the  notes  of  a  higher  value ; 
and,  although  the  Bank  circulation  of  notes  under  5/.  had  increased 
from  one  and  a  half  to  four  and  a  half  millions,  and  the  amount  ot 


AND  SECURE  CURRENCY. 


423 


notes  of  a  higher  description  had  also  increased,  yet  the  whole 
composition  of  the  Bank  was  only  raised  from  24,000/.  to  32,000/. 
In  1808,  there  was  a  further  increase  of  33  per  cent,  to  the  stamp- 
duty,  at  which  time  the  composition  was  raised  from  32,000 /.  to 
42,000/.  In  both  these  instances  the  increase  was  not  in  proportion 
even  to  the  increase  of  duty,  and  no  allowance  whatever  was  made 
for  the  increase  in  the  amount  of  the  Bank  circulation. 

In  the  last  session  of  Parliament,  on  a  further  increase  of  the 
stamp-duty,  the  principle  was  for  the  first  time  established,  that  the 
Bank  should  pay  a  composition,  in  some  proportion  to  the  amount 
of  their  circulation.  It  is  now  fixed  as  follows.  Upon  the  average 
circulation  of  the  three  preceding  years,  the  Bank  is  to  pay  at  the 
rate  of  3500/.  per  million,  without  reference  to  the  classes  or  value 
of  the  notes  of  which  the  aggregate  circulation  may  consist. 

The  average  of  the  Bank  circulation  for  three  years,  ending 
5th  April  1815,  was  25,102,000/.,  and  upon  this  average  they  will 
pay  this  year  about  87,500/. 

Next  year  the  average  will  be  taken  upon  the  three  years  ending 
in  April  1810,  and  if  it  differs  from  the  last,  the  duty  will  vaiy 
accordingly. 

If  the  same  course  had  been  followed  now  as  in  1804  and  1808, 
the  Bank  would  have  had  to  pay,  even  with  the  additional  duty, 
only  52,500/.,  so  that  35,000/.  per  annum  has  been  saved  to  the 
public,  by  Parliament  having  at  last  recognised  the  principle  which 
should  have  been  adopted  in  1799,  and  by  the  neglect  of  which 
the  public  have  probably  been  losers,  and  the  Bank  consequently 
gainers,  of  a  sum  little  less  than  500,000/. 


SECTION  VII. 

Bank  Profits  and  Savings — Misapplication — Proposed  Remedy. 

I  have  hitherto  been  considering  the  profits  of  the  Bank  as  they 
regard  the  public,  and  have  endeavoured  to  show  that  they  have 
greatly  exceeded  what  a  just  consideration  for  their  rights  and 
interests  could  warrant. — I  propose  now  to  consider  them  in  relation 
to  the  interests  of  the  proprietors  of  Bank  stock,  for  which  purpose 
I  shall  endeavour  to  state  a  oasis  on  which  the  profits  of  the  Bank 
may  be  calculated,  with  a  view  to  ascertain  what  the  accumulated 
savings  of  the  Bank  now  are.  If  we  knew  accurately  the  expenses 
of  the  Bank,  and  the  amount  of  cash  and  bullion  which  they  may 
at  different  times  have  had  in  their  hands,  we  should  have  the 
means  of  making  a  calculation  on  this  subject  which  would  be  a 
very  near  approximation  to  the  truth. 

The  profits  of  the  Bank  are  derived  from  sources  which  are  well 
known.  They  arise,  as  has  been  already  stated,  from  the  interest 
on  public  and  private  deposits, — the  interest  on  the  amount  of  their 


424 


PROPOSALS  I'OR  AN  ECONOMICAL 


notes  in  circulation,  after  deducting  the  amount  of  cash  and  bullion, 
— the  interest  on  their  capital  and  savings, — the  allowance  paid 
them  for  the  management  of  the  public  debt, — the  profits  from 
their  dealings  in  bullion,  and  from  the  destruction  of  their  notes. — 
All  these  form  the  gross  profits  of  the  Bank,  from  which  must  be 
deducted  only  their  expenses,  the  stamp-duty,  and  the  property 
tax,  in  order  to  ascertain  their  net  profits. 

Under  the  head  of  expenses  must  be  included  all  the  charges 
attending  the  management  of  the  national  debt,  as  well  as  those 
incurred  by  the  proper  business  of  the  Bank.  In  estimating  the 
former  of  these  charges,  I  have  already  stated  my  grounds  for 
believing  that  it  could  not  exceed  150,000k  In  the  management  of 
the  public  business,  it  was  stated  by  the  committee  on  public  expen¬ 
diture,  that  450  clerks  were  employed  in  1807,  and  it  is  probable 
that  the  number  may  now  be  increased  to  between  500  and  600. 

It  has  also,  I  understand,  been  stated  from  the  best  authority  in 
Parliament,  that  the  Bank  employed  in  the  whole  of  their  establish¬ 
ment  about  1000  clerks ;  consequently,  if  500  are  employed 
exclusively  on  the  public  business,  500  more  must  be  engaged  in 
the  business  of  the  Bank.  Supposing  now  the  expenses  to  bear 
some  regular  proportion  to  the  number  of  clerks  employed,  as 
150,000k  has  been  calculated  to  be  the  expense  attending  the 
employment  of  500  clerks  in  the  public  business,  we  may  estimate 
a  like  expense  to  be  incurred  by  the  employment  of  the  other  500, 
and  therefore  the  whole  expenses  of  the  Bank  to  be  at  the  present 
time  about  300,000k,  including  all  charges  whatsoever.* 

But  although  this  large  sum  is  now  expended,  it  must  have  been 
of  gradual  growth  since  1797  ;  when,  probably,  the  whole  expenses 
of  the  establishment  were  not  more  than  one-half  the  present 
amount.  In  the  first  place,  since  1797,  the  amount  of  bank  notes 
in  circulation  has  increased  from  about  12  millions  to  28  millions, 
but  the  expenses  of  their  circulation,  instead  of  increasing  in  the 
same  proportion  only,  have  at  least,  increased  as  one  to  ten. 

The  amount  of  notes  of  5k  and  upwards  has  been  raised  from  12 
to  18  millions,  and  if  the  average  value  of  notes,  of  all  descriptions 
above  5k,  be  even  so  low  as  15k,  a  circulation  of  12  millions  would 
consist  of  800,000  notes,  and  a  circulation  of  18  millions  of 
1,200,000  notes,  an  increase  in  the  proportion,  as  one  to  one  and 
one-half;  but  the  9  millions  of  notes  under  5k,  which  are  now"  in 

*  It  has  been  remarked,  that  a  sufficient  allowance  is  not  made  in  my  calculations 
for  the  losses  of  the  Bank  by  bad  debts  in  consequence  of  the  bad  bills  which  they 
occasionally  discount.  Their  losses  from  this  source,  I  am  told,  are  often  very  large. 
On  the  other  hand,  I  have  been  informed  that  the  profits  of  the  Bank  from  private 
deposits,  for  which  I  have  taken  no  credit,  must  oe  considerable,  as  the  East  India 
Company  and  many  other  public  boards  keep  their  cash  at  the  Bank. 

A  deduction  from  the  Bank  profits  should  have  been  made  for  their  loss  by  Aslett, 
and  for  the  expenses  attending  their  military  corps.  My  argument  will  not  be 
affected  by  their  surplus  capital  being  only  12  or  ll  instead  of  13  millions. — Note  to 
Second  Edition. 


AND  SECURE  CURRENCY. 


425 


circulation,  have  been  wholly  created  since  1797,  and  if  they 
consist  of  5  millions  of  notes  of  1/.,  and  2  millions  of  notes  of  21.,  a 
number  of  7  millions  of  notes  has  been  further  added  to  the 
circulation,  and  the  whole  number  of  notes  has  been  raised  since 
1797,  from  800,000  to  8,200,000,  or  as  one  to  ten,  and  at  an 
expense  ten  times  greater  than  was  incurred  at  that  time,  the 
expense  being  in  proportion  to  the  number,  and  not  to  the  amount 
of  notes.  It  is  probable,  too,  that  the  notes  of  \l.  and  21.,  which 
are  so  constantly  used  in  the  circulation,  are  more  often  renewed 
than  notes  of  a  higher  value. 

The  public  debt,  too,  under  the  management  of  the  Bank,  is  more 
than  doubled  since  1797,  and  must  have  added  considerably  to  the 
expenses  of  that  department.  These  expenses  have  been  already 
calculated  to  have  risen  since  179(3,  from  84,500/.  to  150,000/.  or 
05,500/.* 

The  public  deposits,  too,  are  at  least  double  what  they  were  in 
1797,  from  all  which  I  have  a  right  to  infer,  that  the  expenses  of 
the  Bank  in  1797,  could  not  have  exceeded  150,000/.,  and  that 
they  have  been  gradually  increasing  since  that  period  ;  perhaps  at 
the  rate  of  7000/.  or  8000/.  per  annum. 

The  next  subject  for  consideration,  is  the  amount  of  cash  and 
bullion  in  the  Bank,  which  at  no  time  has  been  laid  before  the 
public ; — that,  and  the  amount  of  their  discounts,  were  the  only 
material  facts  which  the  Bank  concealed  from  the  public  in  the 
eventful  year  1797.  They  stated  in  the  account  laid  before 
Parliament,  that  their  cash  and  bullion,  and  their  bills  and  notes 
discounted,  amounted  together  to  4,176,080/.  on  the  26th  of 
February  1797.  They  gave  also  a  scale  of  discounts  from  1782  to 
1797,  and  a  scale  of  the  cash  and  bullion  in  the  Bank  for  the  same 
period.  By  comparing  these  tables  with  each  other,  and  with  some 
parts  of  the  evidence  delivered  before  the  Parliamentary  Com¬ 
mittees,  an  ingenious  calculator  discovered  the  whole  secret  which 
the  Bank  wished  to  conceal.  According  to  his  table  the  cash  and 
bullion  in  the  Bank,  on  the  26th  of  February  1797,  was  reduced  as 
low  as  1,227,000/.,  and  4  millions  was  about  the  sum  which  the 
Bank  considered  as  fair  cash;  to  which  it  never  attained  after 
December  1795,  though  previously  to  that  year  it  was  on  some 
occasions  more  than  double  that  amount. 

For  the  first  year  or  two  after  the  suspension  of  cash  payments, 
the  Bank  must  have  made  great  efforts  to  replenish  their  coffers 
with  cash  and  bullion,  as  they  were  then  by  no  means  sure  that 
they  should  not  be  again  required  to  pay  their  notes  in  specie. 
Me  find,  accordingly,  by  accounts  returned  to  Parliament  by  the 
Mint,  that  the  amount  of  gold  coined  in  1797  and  1798,  was  very 
little  less  in  value  than  5,000,000/.f 

*  The  Committee  on  public  expenditure  calculated  these  expenses  at  119, 500/.  in 
1807,  and  stated  the  increase  from  1796  to  1807  at  about  35,000 /. 

t  The  Committee  of  Secrecy  reported  to  Parliament,  that  the  cash  and  bullion  in 


42(5 


PROPOSALS  FOR  AN  ECONOMICAL 


"Whatever  might  have  been  the  amount  of  cash  and  bullion, 
■which  the  Bank  had  acquired  in  the  first  two  years  after  the  sus¬ 
pension  of  cash  payments,  it  is  probable  that  their  stock  has  been 
decreasing  since  that  period,  as  they  could  have  no  motive  for 
keeping  a  large  amount  of  such  unproductive  capital,  when  they 
must  have  been  quite  secure  that  no  call  could  be  made  on  them 
by  the  holders  of  their  notes  for  guineas,  and  that  before  they  were 
again  required  to  pay  in  specie,  they  would  have  ample  notice  to 
prepare  a  due  store  of  the  precious  metals. — It  does  not  appear 
possible,  then,  under  all  the  circumstances  of  the  case,  that  the 
Bank  can  have  added  to  their  stock  of  bullion,  since  the  great 
coinages  of  1797  and  1798  ;  but  it  is  highly  probable  that  they  have 
considerably  reduced  it. 

In  estimating  the  profits  of  the  Bank,  as  far  as  those  profits  are 
influenced  bv  their  stock  of  cash  and  bullion,  I  shall  be  justified  in 
considering  them  greater  since  1797  and  1798,  as  since  those  years 
they  would  naturally  keep  a  less  part  of  their  capital  in  that  unpro¬ 
ductive  shape,  and,  consequently,  more  in  exchequer  bills,  or  in 
merchants’  acceptances,  securities  which  pay  interest,  and  are 
productive  of  profit. — On  an  average  of  the  whole  eighteen  years, 
from  1797  to  1815,  the  cash  and  bullion  of  the  Bank  cannot  be 
estimated  as  amounting  to  more  than  3  millions,  though,  probably, 
for  the  first  year  or  two,  it  amounted  to  4  or  5  millions. 

These  circumstances  being  premised,  it  will  not  be  difficult  to 
calculate  the  profits  of  the  Bank,  from  1797  to  the  present  time, 
all  the  facts  necessary  to  such  calculation  being  known  to  us  except¬ 
ing  the  two  I  have  just  stated,  viz.  the  amount  of  expenses  and  of 
cash  and  bullion,  but  which  cannot  differ  much  from  that  at  which 
I  have  calculated  them. 

Proceeding,  then,  on  this  basis,  it  appears,  as  will  be  seen  by  the 
accounts  in  the  Appendix,  that  the  profits  and  surplus  capital  of 
the  Bank  for  a  series  of  years,  after  paying  all  dividends  and 
bonuses,  have  been  as  follows  [_For  Table  see  next  page.~\ 

If  in  the  accounts  referred  to,  it  should  be  thought  that  I  have 
estimated  the  expenses  of  the  Bank  too  low,  it  may  on  the  other 
hand  be  remarked  that  I  have  not  allowed  for  any  profit  from  the 
deposits  of  individuals.  Those  deposits  may  not  be  very  large,  as 
the  Bank  do  not  afford  the  same  accommodation  to  individuals  as 
given  by  other  bankers.  Some  profit  must,  however,  be  made  from 
this  source,  as  well  as  from  the  loss  and  destruction  of  notes,  which 
it  may  be  presumed,  after  a  time,  are  not  included  in  the  amount 
stated  to  be  in  circulation.  By  the  purchase  of  silver,  and  coinage 

the  Bank,  in  November  1797,  had  increased  to  an  amount  more  than  five  times  the 
value  of  that  at  which  they  stood  on  the  25th  of  February  1797.  They  stated,  too, 
that  the  bankers  and  traders  of  London,  who  had  a  right,  by  the  Act  of  Parliament,  to 
demand  three-fourths  of  any  deposit  in  cash,  which  they  had  made  in  the  Bank,  of 
500/.  and  upwards,  after  the  25th  of  February  1797,  had  only  claimed  in  November  1797, 
about  one-sixteenth. 


ANI)  SECURE  CURRENCY. 


427 


}  Tnu  commencing; 
j  in  January. 

Surplus  capital. 

Profits  after  paying; 
dividend  and  bonuses. 

_ 

Dividend  and  bonus 
together. 

1797, 

£3, 82  6, 890 

•i'89,872 

7  per  cent. 

1798, 

3,916,762 

533,621 

7 

1799, 

4,450,383 

* 

17  ... 

1800, 

3,941,228 

611,981 

7 

1801, 

4,553,209 

116,038 

12 

1802, 

4,669,247 

460,509 

91  ... 

1803, 

5,129,756 

765,859 

7 

1804, 

5,895,615 

306,794 

12 

1805, 

6,202,409 

346,335 

12 

1806, 

6,548,744 

368,008 

12 

1807, 

6,916,752 

581,274 

10 

1808, 

7,498,026 

385,865 

10 

1809, 

7,883,891 

470,760 

10 

1810, 

8,354,651 

651,483 

10 

1811, 

9,006,134 

722,188 

10 

1812, 

9,728,322 

739,867 

10 

1813, 

10,468,189 

809,786 

10 

1814, 

11,279,975 

1,081,649 

10  ... 

1815, 

12,359,624 

1,066,625 

1816, 

13,426,249 

of  tokens,  the  Bank  must,  on  the  whole,  have  been  gainers ;  for 
the  value  of  the  token  has  been  generally  lower  in  the  market,  than 
it  has  passed  for  in  circulation  at  the  time  of  its  issue. 

In  point  of  fact,  too,  the  Bank  receives  more  than  five  percent,  in¬ 
terest  for  their  money;  for  exchequer  bills  paying  3^d.per  day,  pay  51. 
6s.  5-gd.  per  cent,  per  annum  ;  and  in  discounting  bills,  the  interest 
being  immediately  deducted,  is  employed  as  capital,  and  is  instantly 
productive  of  profit ;  at  the  same  time  it  must  be  observed  tha< 
during  a  part  of  the  time  for  which  these  calculations  are  made, 
exchequer  bills  bore  an  interest  of  only  3|d.  per  day,  which  amounts 
to  41.  18s.  Ojd.  per  cent,  per  annum,  rather  less  than  five  per  cent. 

In  March  1801,  when  a  bonus  of  5  per  cent.,  in  navy  5  per 
cents.,  was  divided  amongst  the  proprietors  of  Bank  stock,  Mr 
Tierney  said  in  the  House  of  Commons,  “that  when  the  affairs  of 
the  Bank  of  England  were  investigated  by  the  House  of  Commons 
in  1797,  the  surplus  profits  were  considered  by  some  as  a  security 
for  the  engagements  of  the  Bank  to  the  public.”  To  which  Mr 
Samuel  Thornton,  then  governor  of  the  Bank,  replied,  that  “  he 
could  assure  the  honourable  member,  that  the  security  of  the 
public  would  not  be  lessened  from  what  it  was  in  1797,  by  the 
division  of  the  sum  of  582,1207.  voted  at  the  general  court,  on  the 

*  There  was  this  year  a  loss  of  509,155/. 


428 


PROPOSALS  FOR  AN  ECONOMICAL 


liHli  instant,  as  exclusive  of  that  sum,  the  surplus  profits  of  the 
Bank  were  more  now  than  they  were  in  1797.”* 

On  an  inspection  of  the  account  in  the  Appendix,  it  will  he  seen, 
that,  after  paying  all  the  dividends  and  bonuses  to  the  proprietors, 
the  Bank  had  accumulated  in  April  1801  savings  to  the  amount  of 
3, 945,109/.,  exceeding  the  savings  of  1797  by  1 18,219/.,  an  increase 
not  inconsistent  with  the  declaration  of  Mr  Thornton,  and  therefore 
tending  to  confirm  the  correctness  of  the  basis  on  which  these 
calculations  are  made.f 

It  will  appear  on  an  examination  of  the  accounts  in  the  Appendix 
for  the  subsequent  years,  that  the  profits  of  the  Bank  for  every 
year  since  1801  have  exceeded  the  annual  dividend  paid  to  the 
proprietors,  and  that  in  1815,  the  surplus  for  that  year  only  must 
have  amounted  to  1,066,625/,  so  that  the  Bank  could  have  paid  a 
dividend  for  that  year  of  19  per  cent,  instead  of  10  per  cent. 

It  will  appear,  too,  that  if  the  Bank  affairs  have  been  only  mode¬ 
rately  well  managed,  they  must  now  have  an  accumulated  fund  of 
no  less  than  13  millions,  which,  in  defiance  of  the  clearest  language 
of  an  act  of  Parliament,  the  Directors  have  hitherto  withheld  from 
the  proprietors. 

With  such  an  accumulated  fund,  the  Bank  could  make  a  division 
of  100  per  cent,  bonus  without  infringing  on  their  permanent 
capital ;  and  if  they  could  maintain  their  present  profits,  with  a 
deduction  only  of  523,908/.  per  annum,  the  interest  (less  income 
tax)  on  the  surplus  capital  proposed  to  be  divided,  they  would  still 
have  an  unappropriated  income  of  542,000/.,  which  would  enable 
them  to  increase  their  permanent  dividend  from  10  to  14^  per  cent 
in  addition  to  the  bonus  of  100  per  cent. 

If  they  divided  only  a  bonus  of  75  per  cent.,  they  would  retain  a 
surplus  capital  exceeding  that  of  1797,  and  might,  on  the  above 
supposition,  have  an  unappropriated  income  of  673,000/.,  —  they 
might  therefore  raise  their  permanent  dividend  from  10  to  15J  per 
cent,  in  addition  to  the  bonus  of  75  per  cent. 

But  it  cannot  be  expected  that  the  Bank  will,  during  peace,  have 

*  Allardvce’s  Address  to  the  proprietors  of  the  Bank  of  England,  Appendix,  No.  11. 

t  The  accounts  in  the  Appendix  are  made  up  from  January  to  January.  The  bonus 
in  question  was  paid  in  April  1801.  The  net  profits  of  the  Bank  for  the  whole  year 
1 801  were  1,526,019/.,  consequently  for  the  quarter  ending  in  April  they  mav  be  stated 
at  £381,504 

Which,  added  to  the  surplus  capital  of  January  1 801,  .  .  .  4,553,20!) 

Gives  the  total  of  the  surplus  capital  in  April  1301,  before  paying  the  divi- 

dend  and  bonus,  .  .  .  .  .  £4,934,713 

Deduct — 

Dividend  3|-  per  cent,  for  half  a  year,  .  .  £407,484 

Bonus  5  per  cent.,  .....  582,120 

-  989,604 

Leaving  a  surplus  capital  in  April  1801  of  ...  £3,945,109 

And  exceeding  that  in  1797  of  .  3,826,890 

By  ....  .  £118.219 


AND  SECURE  CURRENCY. 


429 


the  same  opportunities  of  making  profit  as  during  war,  and  the 
proprietors  must,  prepare  themselves  for  a  considerable  reduction  in 
their  annual  income.  What  that  reduction  may  be  will  depend  on 
the  new  agreement  now  to  be  entered  into  with  Government,  on 
the  future  amount  of  public  deposits,  and  on  the  conditions  on 
which  the  restoration  of  metallic  payments  may  be  enforced.  It  is 
evident  that  if  the  plan  which  I  have  recommended  in  the  fourth 
section  of  this  work  be  adopted,  the  Bank  profits  from  this  last  item 
will  not  be  materially  reduced. 

Supposing,  however,  that  the  reduction  of  the  annual  income  of 
the  Bank  should,  from  the  falling  off  of  their  profits  in  all  these 
departments,  be  as  much  as  500,000/.,  the  profits  of  the  Bank 
would  nevertheless  be  equal  to  the  payment  of  the  present  per¬ 
manent  dividend  of  10  per  cent.,  even  after  a  division  of  100  per 
cent,  bonus  to  the  proprietors  of  Bank  stock  :  for,  if  my  calculations 
be  cori’ect,  the  profits  of  the  Bank,  after  the  payment  of  the  annual 
dividend  of  10  per  cent,  to  the  proprietors,  were,  for  the  year  ending 
January  1,  1810,  .....  £1,066,6-25 

Deduct  then  the  interest  now  made  on  11,G42,400/.  proposed  to  he  divided, 
less  property  tax,  ....  £523,908 

Loss  by  a  peace  arrangement,  .  .  500,000 

-  1,023, 90S 


Leaving  a  surplus  cf,  per  annum,  .....  £42,717 

If,  instead  of  100  per  cent.,  50  per  cent,  bonus  only  were  paid 
to  the  proprietors,  the  annual  surplus  profit  of  the  Bank,  after 
paying  10  per  cent,  dividend,  would  be  304,671/.,  a  sum  equal  to  a 
permanent  increase  of  dividend  of  2-i  per  cent. 

And  if  no  bonus  whatever  were  paid,  but  the  savings  were  con¬ 
sidered  as  part  of  the  Bank  capital,  the  annual  surplus  profit  of  the 
Bank,  after  paying  10  per  cent,  dividend,  would  be  566,625/.,  very 
nearly  equal  to  a  permanent  increase  of  dividend  of  5  per  cent. 

These  estimates  are  made  on  a  supposition,  too,  that  the  property 
tax  should  pennanently  continue,  which  is  calculated  to  be  an  annual 
charge  of  more  than  200,000/.,  to  the  Bank,  and  consequently  more 
than  equal  to  a  dividend  of  If  per  cent. 

But  the  Directors  are  bound,  in  my  opinion,  under  every  case,  to 
divide  the  surplus  profits  amongst  the  proprietors,  the  law  impera¬ 
tively  enjoining  such  a  division,  and  policy  being  no  wise  opposed 
to  it. 

Well  was  it  urged  by  the  Hon.  Mr  Bouvcrie,  who  moved  in  the 
last  Bank  court  that  an  account  of  the  surplus  capital  of  the  Bank 
be  laid  before  the  proprietors,  that  this  law  respecting  the  division 
of  profits  was  probably  enacted  by  the  legislature,  on  a  considera¬ 
tion  of  the  powers  of  accumulation  at  compound  interest,  and  the 
dangers  which  might  arise  to  the  constitution  or  the  country,  from 
any  corporation  becoming  possessed  of  millions  of  treasure.  If  the 
profits  of  the  Bank  were  to  continue  at  the  present  rate,  and  no 


430 


PROPOSALS  FOR  AN  ECONOMICAL 


addition  were  to  be  made  to  the  dividend  now  paid  of  10  percent., 
the  accumulation  of  the  surplus  profits  in  forty  years  would  give  to 
the  Bank  a  disposable  fund  of  more  than  120  millions.  Wisely, 
then,  did  the  legislature  enact,  that  “  All  the  profits,  benefits,  and 
advantage  from  time  to  time  arising  out  of  the  management  of  the 
said  corporation,  shall  (the  charges  of  managing  the  business  of  the 
said  governor  and  company  only  excepted )  be  applied  from  time  to 
time  to  the  uses  of  all  the  members  of  the  said  corporation  for  the 
time  being,  rateably  and  in  proportion  to  each  member’s  part,  share, 
and  interest,  in  the  common  capital,  and  principal  stock,  of  the  said 
governor  and  company  of  the  Bank  of  England.” 

Those  who  vindicated  the  Directors- at  the  last  general  court  for 
their  departure  from  the  line  of  conduct  prescribed  by  the  law, 
recommended  the  increase  of  the  capital  of'  the  Bank, — and  they 
thought  that  the  accumulated  savings  might  be  advantageously 
employed  for  such  purpose. 

It  is  said  that  the  Bank  Directors  are  favourable  to  such  a  plan. 

If  the  measure  should  be  a  good  one,  the  sum  of  capital  to  be 
added  should  be  at  once  defined, — the  proprietor's  should  have 
accounts  laid  before  them  of  the  amount  of  their  accumulated  fund, 
and  should  be  consulted  on  the  expediency  of  such  a  disposition  of 
it, — and  lastly,  the  sanction  of  Parliament  should  be  obtained. 

The  Bank,  however,  have  waited  for  none  of  these  conditions, — 
they  have  been,  in  fact,  for  years  adding  the  annual  surplus  profits 
to  their  capital,  without  defining  the  amount  added,  or  to  be  added; 
they  do  it  without  laying  any  accounts  before  the  proprietors — 
without  consulting  them  ;  and  not  only  without  the  sanction  of 
Parliament,  but  in  defiance  of  an  express  law  on  the  subject. 

But  if  the  Bank  complied  with  all  these  conditions,  would  the 
measure  itself  be  expedient,  and  are  the  reasons  given  in  support  of 
it,  namely  the  enlarged  business  of  the  Bank,  and  that  it  would 
tend  to  the  securitj"  both  of  the  Bank  and  the  public,  of  sufficient 
weight  to  justify  its  adoption  ? 

The  business  and  income  of  the  Bank  depend,  as  before  stated, 
on  the  amount  of  the  aggregate  fund  which  they  have  to  employ, 
and  this  fund  is  derived  from  the  three  following  sources :  The 
amount  of  bank  notes  in  circulation,  deducting  only  the  cash  and 
bullion  :  The  amount  of  public  and  private  deposits  :  And  the 
amount  of  that  part  of  the  capital  of  the  Bank  which  is  not  lent  to 
Government.  But  it  is  only  the  two  former  of  these  funds  which 
contribute  to  the  real  profit  of  the  Bank  ;  for  the  interest  received 
for  surplus  capital,  being  only  5  per  cent.,  might  be  made  with  as 
much  facility  by  each  individual  proprietor,  on  his  share  of  such 
capital,  if  under  his  own  management,  as  by  combining  the  whole 
into  one  fund.  If  the  proprietors  were  to  add  from  their  own  indi¬ 
vidual  property  10  millions  to  the  capital  of  the  Bank,  the  income 
of  the  Bank  would  indeed  be  increased  500,000/.  or  5  per  cent,  on 
10  millions ;  but  the  proprietors  would  not  be  gainers  by  such  an 


AND  SECURE  CURRENCY. 


431 


arrangement.  If,  however,  10  millions  were  added  to  the  amount 
of  notes,  and  could  be  permanently  maintained  in  circulation, — or 
if  the  public  and  private  deposits  were  to  be  increased  10  millions, 
the  income  of  the  Bank  would  not  only  be  increased  500,000/.  but 
their  real  profits  also,  and  this  advantage  would  arise  wholly  from 
their  acting  as  a  joint  company,  and  could  not  be  otherwise 
obtained. 

There  is  this  material  difference  between  a  bank  and  all  other 
trades  :  A  bank  would  never  be  established,  if  it  obtained  no 
other  profits  but  those  from  the  employment  of  its  own  capital :  its 
real  advantage  commences  only  when  it  employs  the  capital  of 
others.  Other  trades,  on  the  contrary,  often  make  enormous  profits 
by  the  employment  of  their  own  capital  only. 

But  if  this  argument  be  correct,  with  respect  to  an  additional 
capital  to  be  actually  raised  from  amongst  the  proprietors,  it  is 
equally  so  to  one  withheld  from  them. 

To  increase  the  profits  of  the  Bank  proprietors,  then,  an  increase 
of  capital  would  be  neither  necessary  nor  desirable. 

Neither  would  such  an  addition  contribute  towards  the  security 
of  the  Bank;  for  the  Bank  can  never  be  called  upon  for  more  than 
the  payment  of  their  notes,  and  the  public  and  private  deposits  ; 
these  constituting,  at  all  times,  the  whole  of  their  debts.  After 
paying  away  their  cash  and  bullion,  their  remaining  securities,  con¬ 
sisting  of  merchants’  acceptances  and  Exchequer  bills,  must  be  at 
least  equal  to  the  value  of  their  debts  ;  and  in  no  case  can  these 
securities  be  deficient,  even  without  any  surplus  capital,  excepting 
the  Bank  should  lose  all  that  which  constitutes  their  growing 
dividend  ;  and  even  then  they  could  not  be  distressed,  unless  we 
suppose  that  at  the  same  time  payment  were  demanded  for  every 
note  in  circulation,  and  for  the  whole  of  their  deposits,  both  public 
and  private. 

Is  it  against  such  a  contingency  that  the  proprietors  are  called 
upon  to  provide  ;  when  even  under  these,  almost  impossible  circum¬ 
stances,  the  Bank  would  have  an  untouched  fund  of  11,686,000/. 
which  Government  owe  them  ? 

Would  the  security  of  the  public  be  increased?  In  one  respect 
it  would.  If  the  Bank  have  no  other  capital  but  that  which  they 
lend  to  Government,  they  must  lose  all  that  capital  by  their  trade, 
or  more  than  11^  millions,  before  the  public  can  be  sufferers;  but 
if  the  capital  of  the  Bank  were  doubled,  the  Bank  might  lose  20 
millions,  before  any  creditor  of  theirs  could  suffer  loss.  Arc  the 
friends  to  an  increase  of  the  capital  of  the  Bank  prepared  to  say, 
that  it  is  against  the  consequences  of  the  loss  of  the  whole  Bank 
capital  that  they  are  desirous  of  protecting  the  public? 

It  remains  to  be  considered,  whether  the  ability  of  the  Bank  to 
pay  their  notes  in  specie  would  be  increased  by  an  increase  of  their 
capital.  The  ability  of  the  Bank,  to  pay  their  notes  in  specie,  must 
uepend  upon  the  proportion  of  specie  which  they  may  keep,  to  meet 


432 


PROPOSALS  FOR  AN  ECONOMICAL 


the  probable  demand  for  payment  of  their  notes  ;  and  in  this  respect 
their  power  cannot  be  increased,  for  they  may  now,  if  they  please , 
have  a  stock  of  specie,  not  only  equal  to  all  their  notes  in  circula¬ 
tion,  but  to  the  whole  of  the  public  and  private  deposits,  and  under 
no  possible  circumstances  can  more  be  demanded  of  them.  But  the 
profits  of  the  Bank  essentially  depend  on  the  smallness  of  the  stock 
of  cash  and  bullion ;  and  the  whole  dexterity  of  the  business  con¬ 
sists  in  maintaining  the  largest  possible  circulation,  with  the  least 
possible  amount  of  their  funds  in  the  unprofitable  shape  of  cash  and 
bullion.  The  amount  of  notes  in  circulation  depends  in  no  degree 
on  the  amount  of  capital  possessed  by  the  issuers  of  notes,  but  on 
the  amount  required  for  the  circulation  of  the  country  ;  which  is 
regulated,  as  I  have  before  attempted  to  show,  by  the  value  of  the 
standard,  the  amount  of  payments,  and  the  economy  practised  in 
effecting  them. 

The  only  effect,  then,  of  the  increase  of  the  capital  of  the  Bank 
would  be  to  enable  them  to  lend  to  Government  or  to  merchants 
those  funds,  which  would  otherwise  have  been  lent  by  individuals 
of  the  community.  The  Bank  would  have  more  business  to  do — • 
they  would  accumulate  more  merchants’  acceptances  and  exchequer 
bills :  they  would  even  increase  the  income  of  the  Bank ;  but  the 
profits  of  the  proprietors  would  be  neither  more  nor  less,  if  the 
market  rate  of  interest  for  money  were  at  5  per  cent.,  and  the 
business  of  the  Bank  were  carried  on  with  the  same  economy.  The 
proprietors  would  be  positive  losers,  if  they  could  individually  have 
employed  their  shares  of  this  capital  in  trade,  or  otherwise,  at  a 
greater  profit. 

But  not  only  do  the  Bank  refuse,  in  direct  contradiction  to  an 
act  of  Parliament,  to  make  a  division  of  their  accumulated  profits, 
but  they  are  equally  determined  not  to  communicate  to  the  pro¬ 
prietors  what  those  profits  are,  notwithstanding  their  bye-law 
enjoins,  “  that  twice  in  every  year  a  general  court  shall  be  called, 
and  held  for  considering  the  general  state  and  condition  of  this  cor¬ 
poration,  and  for  the  making  of  dividends,  out  of  all  and  singular 
the  produce  and  profit  of  the  capital  stock  and  fund  of  this  cor¬ 
poration  and  the  trade  thereof,  amongst  the  several  owners 
and  proprietors  therein,  according  to  their  several  shares  and 
proportions.” 

If  the  law  had  been  silent  on  the  subject,  the  Bank  Directors 
would,  I  think,  be  bound  to  show  some  specific  evil  which  would 
result  from  publicity,  before  they  refused  to  show  a  statement  of 
their  affairs  to  the  proprietors. 

It  is  in  fact  the  only  security  which  the  proprietors  have,  against 
the  abuse  of  the  trust  reposed  in  the  Directors. 

The  affairs  of  the  Bank  may  not  always  be  managed  by  such 
men  as  are  now  in  the  direction,  against  whom  not  a  shadow  of 
suspicion  any  where  exists. 

Without  accounts;  without  a  division  of  profits;  and  without 


AND  SECURE  CURRENCY. 


433 


any  other  proof  of  the  accumulated  fund  of  the  Bank,  but  the 
notoriety  of  the  increase  of  the  sources  from  which  the  Bank  profits 
are  made — and  that  for  a  period  of  more  than  ten  years  ;  what 
security  have  the  proprietors  against  a  corrupt  administration  of 
their  affairs.  It  is  not  consistent  with  the  delicacy  of  the  situation 
of  those  who  are  entrusted  with  the  management  of  millions  to 
demand  such  unbounded  confidence — so  much  reliance  on  their 
own  personal  character,  without  stating  some  grounds  for  such  a 
demand.  Yet  the  only  answer  which  the  Directors  made  to  a 
motion  for  a  statement  of  profits,  in  the  last  general  court,  was,  that 
they  should  consider  the  passing  of  such  a  resolution  as  betraying  a 
want  of  confidence.in  them,  and  as  a  censure  on  their  proceedings. 

On  all  sides,  such  an  intention  was  disclaimed  ;  yet,  strange  to 
say,  no  other  reply  could  be  obtained  from  the  Directors. 

The  publication  of  accounts,  besides  being  necessary  as  a  check 
against  the  corrupt  administration  of  the  Directors,  is  also  necessary 
to  give  assurance  to  the  proprietors,  that  their  affairs  are  abhj 
administered.  Since  1797,  no  statement  has  been  made  of  the 
condition  of  the  Bank  ;  and,  even  in  that  year,  it  was  made  to 
Parliament,  on  a  particular  exigence,  and  not  to  the  proprietors  of 
bank  stock.  How,  then,  can  the  proprietors  know  whether,  in  the 
favourable  circumstances  in  which  the  Bank  have  been  placed,  the 
Directors  have  availed  themselves  of  all  the  opportunities  which 
have  offered,  of  employing  the  funds  entrusted  to  their  charge  to 
the  best  advantage  ?  Would  it  not  be  desirable,  that  from  time  to 
time  the  proprietor’s  should  be  able  to  ascertain  whether  their  just 
expectations  had  been  realised,  and  whether  their  affairs  had  been 
ably  as  ■well  as  honourably  administered  ?  If  the  practice  of  laying 
all  accounts  before  the  proprietors  had  been  always  followed, 
perhaps  the  Directors  of  1793,  1794,  and  1795,  might  have  been 
admonished  for  so  badly  managing  the  affairs  of  the  Bank,  as  to 
keep  permanently  in  their  coffers  a  sum  of  cash  and  bullion,  gene¬ 
rally  more  than  three-fourths,  and  seldom  less  than  one-half  the 
whole  amount  of  their  notes  in  circulation.  They  might  possibly 
have  been  told,  that  such  a  waste  of  the  resources  of  the  Bank 
showed  a  very  limited  knowledge  of  the  principles  by  which  a  paper 
currency  should  be  regulated.* 

These  irregularities  in  the  proceedings  of  the  Bank  excited  the 
attention  of  an  independent  proprietor,  Mr  Allardyce,  in  1797  and 
1801.  In  his  excellent  publication  on  Bank  affairs,  he  has  pointed 
out  with  great  force  and  ability  the  illegal  conduct  of  the  Bank. 
Ilis  ^opinion  was  confirmed  by  Mr,  now  Sir  James  Mansfield,  who 
was  consulted  by  him,  as  to  the  course  necessary  to  be  pursued,  to 
compel  the  Directors  to  lay  an  account  before  the  proprietors  of  the 


*  For  the  account  of  cash  and  bullion  in  the  Bank  in  the  above  years  I  trust  to 
the  calculations  to  which  I  have  already  alluded,  page  425.  I  can  see  no  reason  to 
doubt  their  general  accuracy. 


43-1 


PROPOSALS  FOR  AN  ECONOMICAL 


state  of  the  Company.  Sir  James  Mansfield’s  opinion  was  o-iven 
as  follows : — 

u  I  am  of  opinion,  that  every  proprietor,  at  a  general  half  yearly 
court,  has  a  right  to  require  from  the  Directors,  and  it  is  the  duty 
of  the  latter  to  produce  all  such  accounts,  books  and  papers,  as  are 
necessary  to  enable  the  proprietors  to  judge  of  the  state  and  con¬ 
dition  of  the  corporation  and  its  funds,  and  to  determine  what 
dividend  ought  to  be  paid.  The  proper  method  to  be  pursued  by 
those  who  consult  me  in  order  to  obtain  such  a  production  is,  that 
a  number  of  respectable  proprietors  should  immediately  give  notice 
to  the  Governor  and  other  Directors,  that  they  shall  require  at  the 
next  general  court  a  production  of  all  the  necessary  books,  accounts 
and  papers ;  and  at  the  general  court,  when  it  shall  be  held,  to 
attend  and  require  such  a  production.  If  it  shall  not  be  obtained, 
I  then  advise  them  immediately,  or  within  a  few  days  after  the 
holding  of  the  general  court,  to  make  an  application  to  the  Governor 
to  call  a  general  court,  which  application  must  be  made  by  nine 
members  at  least,  having  each  500/.  stock.  If  the  Governor  shall 
refuse  to  call  such  general  court,  then  the  nine  members  who  shall 
have  applied  to  him  to  have  a  court  called,  may  themselves  call  one 
in  the  manner  prescribed  by  the  charter;  and  whether  the  Governor 
calls  such  court,  or  it  is  called  by  the  nine  members,  I  advise  them, 
as  soon  as  it  is  called,  to  apply  to  the  Court  of  King’s  Bench  for  a 
mandamus  to  the  Governor  and  Directors,  to  produce  at  such  court 
all  the  necessary  books,  accounts  and  papers. 

“  J.  Mansfield  ” 

“  Temple,  March  9,  1801.” 

In  consequence  of  this  opinion,  Mr  Allardyce  delivered  a  demand 
in  writing  at  the  next  general  court,  held  the  19th  March  1801, 
that  the  accounts  should  be  produced,  and  no  doubt  intended  to 
follow  up  this  proceeding  in  the  way  recommended  by  Sir  James 
Mansfield, — but  he  soon  after  died  ;  and  since  that  time  no  pro¬ 
prietor  has  made  any  demand  for  accounts,  till  at  the  last  general 
court  in  December.  It  is  remarkable  that,  very  unexpectedly  to 
the  proprietors,  a  bonus  of  5  per  cent.,  in  navy  5  per  cents.,  w'as 
voted  in  the  general  court  of  the  19th  March  1801,  the  day  on 
which  Mr  Allardyce’s  demand  was  made  and  refused.  The  first 
motion  for  accounts  made  by  Mr  Allardyce  wras  in  the  general 
court,  held  14th  December  1797  ;  and  in  March  1799,  there  was  a 
bonus  of  10  per  cent,  in  5  per  cents.  1797.  Mr  Allardyce  did  not, 
I  believe,  make  any  motion  in  the  Bank  court  between  December 
1797  and  March  1801. 

Since  1797,  then,  the  proprietors  have  remained  in  utter  ignor¬ 
ance  of  the  affairs  of  the  Bank.  During  eighteen  years  the 
Directors  have  been  silently  enjoying  their  lucrative  trade,  and 
may  now  possibly  think  that  the  same  course  is  best  adapted 
to  the  interests  of  the  Bank,  particularly  as  negociations  are  about 


AND  SECURE  CURRENCY. 


436 


to  take  place  with  Government,  when  it  might  be  as  well  that 
the  amount  of  their  accumulated  fund  should  not  be  known.  But, 
the  public  attention  has  been  lately  called  to  the  affairs  of  the 
Bank  ;  and  the  subject  of  their  profits  is  generally  canvassed  and 
understood.  Publicity  would  now  probably  be  more  beneficial 
than  hurtful  to  the  Bank;  for  exaggerated  accounts  of  their  profits 
have  been  published  which  may  raise  extravagant  expectations, 
and  which  may  be  best  corrected  by  official  statements.  Besides 
which,  the  Bank  are  secure  of  their  charter  for  seventeen  years  to 
come ;  and  the  public  cannot,  during  that  time,  deprive  them  of 
the  most  profitable  part  of  their  trade.  If,  indeed,  the  charter  were 
about  to  expire,  the  public  might  question  the  policy  of  permitting 
a  company  of  merchants  to  enjoy  all  the  advantages  which  attend 
the  supplying  of  a  great  country  with  paper  money  ;  and  although 
they  would  naturally  look  with  jealousy,  after  the  experience  fur¬ 
nished  by  other  states,  to  allowing  that  power  to  be  in  the  hands 
of  Government,  they  might  probably  think  that  in  a  free  country 
means  might  be  found  by  which  so  considerable  an  advantage  might 
be  obtained  for  the  State,  independently  of  all  control  of  ministers. 
Paper  money  may  be  considered  as  affording  a  seignorage  equal  to 
its  whole  exchangeable  value, — but  seignorage  in  all  countries 
belongs  to  the  State,  and  with  the  security  of  convertibility  as 
proposed  in  the  former  part  of  this  work,  and  the  appointment  of 
commissioners  responsible  to  Parliament  only,  the  State,  by  becoming 
the  sole  issuer  of  paper  money,  in  town  as  well  as  in  the  country, 
might  secure  a  net  revenue  to  the  public  of  no  less  than  2  millions 
sterling.  Against  this  danger,  however,  the  Bank  is  secure  till 
1833,  and  therefore  on  every  ground  publicity  is  expedient. 


APPENDIX. 


No.  I  * 

Table  showing  the  Amount  annually  paid  by  the  Public,  from  1797  to  1815,  for 
Management  of  the  British,  Irish,  German,  and  Portuguese  Debt. 


Year  commencing 
5th  January. 

1797 

L.162,431 

5 

3 

1798 

212,592 

1 

5 

1799 

218,190 

17 

0 

1800 

238,294 

3 

8 

1801 

236,772 

15 

8 

1802 

263,105 

14 

6 

1803 

247,538 

11 

0 

1804 

267,786 

19 

7 

1805 

• 

271,911 

11 

9 

1806 

• 

292,127 

9 

in 

1807 

• 

297,757 

16 

1 

1808 

• 

210,549 

2 

7 

1809 

• 

222,775 

2 

4 

1810 

• 

217,825 

13 

5 

1811 

• 

228,349 

16 

0 

1812 

• 

• 

223,705 

12 

5 

1813 

• 

238,827 

17 

7 

1814 

• 

242,263 

14 

7 

No.  II. 

Table  showing  the  Amount  annually  received  by  the  Bank  from  1797  to  1815,  foi 
receiving  Contributions  on  Loans.t 

Year  commencing 
Michaelmas. 

1796  ......  L. 20, 506  3  4 

1797  ......  27,410  0  4 

•  The  particulars  in  the  above  table  are  taken  from  the  annual  finance  book,  printed  by  order  o! 
the  House  ot  Commons.  They  include  not  only  what  is  paid  to  the  Bank,  but  to  the  Exchequer  and 
South  Sea  Company.  The  annual  charge  of  the  South  Sea  Company  is  now  about  14,560?.  In  1797 
it  was  14,657?.  The  Exchequer  charge  was  as  high  as  0760?.  Os.  8d.,  in  1807  it  fell  gradually  to  2485?. 
and  has  now,  I  believe,  ceased. 

The  Bank  have  also  been  paid  for  management  of  life  annuities  since  1810, — and  since  1812,  about 
1-00?.  or  1300?.  per  annum  for  management  of  a  loan  of  2£  millions,  raised  for  the  East  India  Com¬ 
pany,  which  are  not  included  in  this  table. 

t  This  table  is  taken  from  an  account  laid  before  Parliament,  on  tbe  19th  cf  June  1815. 


438 


PROPOSALS  FOR  AN  ECONOMICAL 


Year  commencing 
5tli  January. 

1799 

1800 
1801 
1802 

1803 

1804 

1805 

1806 

1807 

1808 

1809 

1810 
1811 
1812 

1813 

1814 


L.16,115  6  8 
12,489  15  5 

39,080  17  11 
22,538  12  3 
9,669  10  0 

11,683  19  7 

18,130  16  3 

16,115  16  8 

12,650  18  7 

8,400  0  () 

11,680  0  0 
14,705  0  0 
19,031  14  0 

21,639  8  9 

42,200  0  0 


No.  III. 

Tlie  total  Amount  of  the  Unredeemed  Funded  Debt  of  Great  Britain  and  Ireland, 
including  Loans  to  the  Emperor  of  Germany  and  Prince  Regent  of  Portugal, 
payable  in  Great  Britain,  was  on  the  1st  of  February  1815,  according  to  accounts 
laid  before  Parliament,  ....  L.727,767,421  2  5| 

Do.  for  East  India  Company,  ....  3,929,561  0  0 


L. 731, 696, 982  2  5? 

Debt  contracted  from  Feb.  1  to  Aug.  1, 1815,  L. 87, 448, 402  16  0 
Redeemed  from  Feb.  1  to  Aug.  1  1815,  .  11,099,166  0  0 

-  76,349,236  16  0 


Total  of  unredeemed  funded  debt  on  Aug.  1,  1815,  .  L.808,046,218  18  5jJ- 

The  charge  for  management  on  which  is  as  follows  : — 


L. 15, 233, 484  13  11 

11,686,000  0  0 
600,000,000  0  0 
181,126,734  4  6f 


South  Sea  Stock  and  annuities,  for  the  management  of  which 
South  Sea  Co.  is  paid  .  .  L.14,560  4  11 

due  to  the  Bank  of  England,  .  .  5,898  3  5 

at  340/.  per  million,  .  .  .  204,000  0  0 

at  300/.  do.  .  .  .  54,338  0  5 


L.808,046,218  IS  5f 

2,795,340  0  0  life  annuities,  .  .  .  .  .  899  5  0 

39,735,898  6  8  for  1,589,435/.  6s.  8d.anns.  at  25  years’ purchase,  11,920  15  4 


L.850,577,457  5  If 


L.291,61 6  9  7 

Deduct  the  first  sum  paid  to  the  South  Sea  Company,  .  14,560  4  11 


Management  paid  to  the  Bank  of  England  on  the  debt  as  it  stood' 

Aw.  1.  1815,  .  .  •  .  ; 


L.277,056  4  8 


AND SECUKE  CURRENCY 


430 


No.  IV. 

Average  Amount  of  Bank  of  England  Notes,  including  Bank  Post  Bills,  in  circulation 
in  each  of  the  following  years. 


Years. 

Notes  of  five  pounds 
and  upwards,  includ¬ 
ing  Bank  post  bills. 

Notes  under  five 
pounds. 

Total. 

1797 

10,095,620 

1,096,100 

11,191,720 

1798 

11,527,250 

1,807,502 

13,334,752 

1799 

12,408,522 

1,653,805 

14,062,327 

1800 

13,598.666 

2,243,266 

15,841,932 

1801 

13,454,367 

2,715,182 

16,169,594 

1802 

13,917,977 

3,136,477 

17,054,454 

1803 

12,983,477 

3,864,045 

16,847,522 

1804 

12,621,348 

4,723,672 

17.345,020 

1805 

12,697,352 

4,544,580 

17,241,932 

1800 

12,844,170 

4,291,2.30 

17,135,400 

1807 

13,221,988 

4,183,01.3 

17,405,001 

1808 

13,402,160 

4,132,420 

17,534,580 

1809 

14,133,615 

4,868,275 

19,001,890 

1810 

16,085,522 

6,644,763 

22,730,285* 

1811 

16,286,950 

7,260,575 

23,547,525 

1812 

15,8G2,120 

7,600,000 

23,462,120 

1813 

16,057,000 

8,030,000 

24,087,000 

1814 

18,540,780 

9,300,000 

27,840,780 

1815 

18,157,956 

9,161,454 

27,319,410 

No.  V. 


AN  ESTIMATE  OF  THE  PROFITS  OF  THE  BANK  OF  ENGLAND  FOR 
THE  YEAR  COMMENCING  JANUARY  5  1797. 


Bank  notes  in  circulation, 

Public  deposits, 

Surplus  above  permanent  capital,! 


L.l  1,191,720 
5,000,000 
3,826,890 


Deduct  cash  and  bullion, 


20,018,610 

5,000,000 


Funds  yielding  interest,  .  .  L. 15, 018, 610  at  5  per  cent.  L. 750, 930 

Charge  for  management  of  national  debt,  ....  1 43,800 

Do.  do.  loan,  ....  20,506 

Do.  do.  lottery,  .....  1,000 

Interest  on  11,686,000/.  lent  to  Government  at  3  per  cent.  .  .  350,604 


Carry  forward,  1,-1,266,840 


•  Till  18)1,  the  above  are  extracted  from  the  report  of  the  bullion  committee;  since  that  year  from 
returns  made  to  Parliament. 

■f  This  sum  was  returned  by  the  Bank  to  Parliament  as  their  surplus  capital,  February  2 G,  1797. 


PROPOSALS  FOR  AN  ECONOMICAL 


440 


Deduct — 

Expenses, 

Stamps, 

Voluntary  contribution, 


Brought  over,  L.l, 266,840 

L.  150,000 
12,000 
200,000 

-  362,000 


904,840 

Dividend  7  per  cent,  on  11,642,400/.,  ....  814,968 

Profit,  .  .  L.89,872 


ESTIMATE  FOR  THE  YEAR  COMMENCING  JANUARY  1798. 


Surplus  before  1797  .  .  -  L. 3, 826, 890 

Do.  of  1797,  .....  89,872 


Bank  notes  in  circulation, 
Public  deposits, 


L.3,916,762 

13,334,752 

5,700,000 


Deduct  cash  and  bullion, 


L. 22, 951, 514 
4,000,000 


Funds  yielding  interest,  .  .  L.18,951,514  at  5  per  cent., 

Charge  for  management  of  national  debt,  .  .  .  L.  192,000 

Do.  do.  loans,  .  .  .  27,410 

Do.  do.  lottery,  .  .  .  1,000 


Interest  on  1 1,686,800/.  capital  at  3  per  cent., 


L.947,575 


220,410 

350,604 


Deduct — 

Expenses, 

Stamps,  . 

Seven  per  cent,  dividend, 


L. 1,518, 589 

L.l  58,000 
12,000 
814,968 

• -  984,968 

Profit,  .  .  L.533,621 


Former  savings, 
Do.  for  1798, 


YEAR  COMMENCING  JANUARY  5,  1799. 

L.3,916,762 

533,621 


L.4,450,383 

14,062,300 

6,400,000 


Bank  notes, 
Public  deposits, 


Deduct  cash  and  bullion, 

Funds  yielding  interest,  . 

Charge  for  management  of  national  debt, 
Do.  do.  loans, 

Do.  do.  lotteries, 

Interest  on  11,686,800/., 


L.24, 9 12,683 
3,000,000 


L.21,912,683  5  per  cent.,  L.l, 095, 634 
.  .  L. 196, 700 

16,115 
1000 

-  213,815 

.  .  .  .  350,604 


Carry  forward, 


L.l, 660, 053 


AND  SECURE  CURRENCY. 


441 


Deduct — 

Expenses, 

Stamps,* 

Dividend  7  per  cent., 
Bonus  10  per  cent., 


Brought  over,  L. 1,060,003 

I.  166,000 
24,000 
814,968 
1,164,240 

-  2,169,208 


Loss,  .  .  L.509,155 


YEAR  COMMENCING  JANUARY  5,  1800. 


Former  savings, 
Loss  of  1799, 


Bank  notes, 

Deposits, 

Deduct  cash  and  bullion, 
Loan  to  Government, 


Funds  yielding  interest, 
Management  of  national  debt, 
Do.  loans,  . 

Do.  lottery,  . 

Interest  on  11,686,800/., 


L.4,450,383 

509,155 


L.  3, 941, 228 
15,841,900 
7,100,000 


L.26,883,128 

L.3,000,000 

3,000,000f 

-  6,000,000 


L.20,883,128 


at  5  per  cent.,  1,044,!  56 
L.216,700 
12,489 
1,000 

-  230,189 

350,604 


Deduct — 

Expenses, 

Stamps, 

Dividend  7  per  cent., 


L.  1,624,949 

L.  174,000 
24,000 
814,968 

- 1,013,968 


Profit,  .  .  L.  6 11,981 


Former  savings, 
Surplus,  1800, 


Bank  notes, 
Deposits, 


YEAR  COMMENCING  JANUARY  5,  1801. 

L. 3, 941, 228 
611,981 


L.4, 55.3, 209 
16,169,500 
7,800,000 


L. 28, 522, 709 

Loan  to  Government,  .  L.3,000,000 

Cash  and  bullion,  .  3,000,000 

-  6,000,000 


Funds  yielding  interest,  .  .  L.22,522,709  at  5  per  cent.,  L.  1.126,135 


Carryforward,  L.1,126,135 

*  The  composition  inr  stamps  was  raised  this  year  to  21,0001.;  in  IS03-1,  to  32,000!.;  in  1800-*,  to 
42,000!.;  and  in  1815-16,  to  87,500?. 

t  Tlie  Bank  lent  to  Government  this  year  3  millions,  without  interest,  tor  six  years,  and  afterwai  os 
continued  the  same  loan  for  eight  years  at  3  per  cent,  intercs . 


442 


PROPOSALS  FOR  AN  ECONOMICAL 


Charge  for  management  of  national  debt, 

Do.  do.  loans,  . 

lh>.  do.  lottery, 

Brought  over, 
L.21 5,200 
39,080 
1,000 

L.l,126,13;-> 

255,280 

350,604 

Interest  on  capital, 

. 

Deduct — 

Expenses, 

Stamps, 

. 

.  L.182,000 

.  21,000 

L.1,732,019 

206,000 

Dividend  7  per  cent., 
Bonus  5  per  cent., 

• 

.  L. 814,968 

582,120 

L. 1,526,019 

1,397, OSS 

Property-tax,* 

L.128,931 

12,893 

Profit, 

L.  11 6,038 

YEAR  COMMENCING  JANUARY  1802. 


Former  savings,  . 

L.4,553,209 

Profits,  1801, 

116,038 

L.4,669,247 

Bank  notes, 

17,050,000 

Deposits, 

8,600,000 

L. 30, 319, 247 

Deduct — 

Loan  to  Government, 

L. 3, 000, 000 

Cash  and  bullion, 

3,000  000 

-  6,000,000 

Funds  yielding  interest, 

L. 24, 319, 247 

at  5  per  cent.. 

,  1,215,962 

Charge  for  management  of  national  debt, 

L. 241, 600 

Do.  do. 

loans,  .... 

22,538 

Do.  do. 

lottery, 

1,000 

265,138 

Interest  on  capital, 

. 

350,604 

L.  1,831,704 

Deduct — 

Expenses, 

. 

L. 190,000 

Stamp's, 

• 

24,000 

Dividend  7  per  cent., 

. 

814,968 

Bonus  2 £  per  cent.. 

. 

291,060 

1,320,028 

L.511,676 

Property  tax, 

51,167 

Profit,  . 

L. 460, 509 

*  The  property-tax  was  paid  by  the  proprietors  till  1806,  when  the  Bank  agreed  to  pay,  on  their 
whole  profits  to  Government,  and  not  to  make  any  deduction  from  the  dividend  warrant. 


AND  SECURE  CURRENCY 


443 


YEAR  COMMENCING  JANUARY  1803. 


Former  savings.  . 

L.4,663,247 

Profits,  1802, 

*  * 

460,509 

L.5,129,756 

Bank  notes, 

16,847,500 

Deposits, 

9,800,000 

L.31,277,256 

Loan  to  Government, 

L.3,000,000 

Cash  and  bullion, 

3,000,000 

6,000,000 

L.1, 263,862 


236,669 

350,604 


Management  of  the  national  debt, 
Do.  loans, 

Do.  lottery, 


L.25,277,256 


L.226,000 

9,669 

1,000 


Interest  on  capital, 


Deduct — 

Expenses, 

Stamps, 

Dividend  7  per  cent., 


Property-tax  on  net  profit,  5  per  cent., 


L.1,851, 135 

L.  198,000 
32,000 
814,968 

-  1,044,968 


L.806,167 

40,308 


Profit,  .  .  .  Ii. 765, 859 


YEAR  COMMENCING  JANUARY  1804. 


Former  savings, 
Profits,  1803,  . 


Bank  notes, 
Deposits, 


Deduct — 

Loan  to  Government, 
Cash  and  bullion, 


L.5,129,756 

765,859 


L.5,895,615 

17,345,020 

10,000,000 


L.33,240,635 

L. 3, 000, 000 
3,000,000 

-  6,000,000 


Funds  yielding  interest, 

Charge  for  management  of  national  debt, 
Do.  do.  loans, 

Do.  do.  lottery, 

Interest  of  capital. 


L.27,240,635  5  per  cent.  1,362,030 
L.246.700 

.  3,000 

249,700 
350,604 


Carry  forward. 


L.  1,962,334 


44  i 


PROPOSALS  FOR  AN  ECONOMICAL 


Deduct — 

Expenses, 

Brought  over,  L.1,962,334 

L.206,00C 

Stamps, 

• 

. 

.  32,000 

Dividend  7  per  cent. 

* 

# 

• 

814,968 

Bonus  5  per  cent. 

• 

• 

.  582,120 

Property  tax  6j  per  cent., 

• 

-  1,635,088 

L.327,246 

20,452 

Profit,  .  .  L. 306, 794 


YEAR  COMMENCING  1S05. 


Former  savings,  . 

Profit,  1814, 

* 

L.5,895,615 

306,794 

Bank  notes, 

Deposits, 

• 

L.6,202,409 

17,241,932 

10,700,000 

Loan  to  Government,  . 
Cash  and  bullion, 

.  L. 3, 000, 000 
.  3,000,000 

L.34, 144,341 

6,000,000 

Charge  for  management  of  national  debt, 

Do.  do.  loan,  . 

Do.  do.  lotteries, 

Interest  on  capital, 

L.28, 144,341 

percent.  L.1,407,217 
L.254,400 

11,683 

4,000 

-  270,083 

350,604 

Deduct — 

Expenses, 

Stamps, 

Dividend  7  per  cent., 
Bonus  5  per  cent., 

Property  tax  10  per  cent. 

. 

•  • 

•  • 

•  • 

•  • 

L.2,027,904 

L. 214, 000 

32,000 

814,968 

582,120 

-  1,643,088 

L.384,816 
.  38,481 

L.346,335 


YEAR  COMMENCING  1806. 


Former  savings, 
Savings,  1805, 


L.6,202,409 

346,335 


L. 6, 548, 744 
17,135,400 
11,000,000 


Bank  notes, 
Public  deposits, 


Carry  forward, 


L. 34.684,144 


AND  SECURE  CURRENCY.  445 


Brought  over,  L. 34, 684, 144 

Loan  to  Government  .  L.3,000,000  at  3  per  cent.’  L.90,000 

Cash  and  bullion,  .  .  3,000,000 

-  6,000,000 


L. 28, 684, 144  at  5  per  cent.  1,434,207 


Charge  for  management  of  national  debt, 

L.275,000 

Do.  do.  loan, 

. 

18,130 

Do.  do.  lotteries, 

• 

2,000 

-  295,130 

Interest  on  capital, 

• 

350,604 

Deduct — 

L.2, 169, 941 

Expenses,  .... 

L.222,000 

Stamps,  .... 

32,000 

Dividend  of  7  per  cent., 

814,968 

Bonus  of  5  per  cent. 

582,120 

651,083 

L.518,853 

Property  tax,  10  per  cent,  on  surplus, 

L.5 1,885 

t  Do.  do.  on  bonus  and  October  dividend, 

98,960 

-  150,845 

Profit, 

L.368,008 

YEAR  COMMENCING  JANUARY  1807 


Former  savings, 

Profit,  1806, 

.  L.6,548,744 

368,008 

Bank  notes, 

Deposits, 

L.6,9 16,752 

17,405,000 

11,000,000 

Loan  to  Government, 

Cash  and  bullion, 

L.35,321,752 

.  L.3,000,000  at  3  per  cent. 

3,000,000 

-  6,000,000 

90,000 

L.29,321,752 

1,466,087 

Management  of  national  debt, 

Do.  loans, 

Do.  lotteries, 

Commission  for  receiving  property  tajc, 

Interest  on  capital, 

Deduct — 

Expenses, 

Stamps,  .  .  . 


Dividend  10  per  cent.,  . 
Property  tax,  . 


L. 280, 500 
16,115 
5,000 
3,154 


L. 1,556, 087 


304,769 

350,604 


L.2, 21 1,460 

L.230,000 

42,000 

-  272,000 


L.1,939,460 

L.l, 164,240 
.93,946 

-  1,358,186 


L.581,274 


•  See  note,  p.  44., 


Profit, 


*  oee  note,  p.  441 . 


PROPOSALS  FOR  AN  ECONOMICAL 


4  46 


YEAR  COMMENCING  180S. 


Former  savings. 
Profit,  1807, 


L.G, 916,752 
5S1,274 


Bank  notes, 
Deposits, 


L.7,498,026 

17,534,580 

11,000,000 


Loan  to  Government, 
Do. 


Cask  and  bullion, 


L.36, 032.606 

L.3,000,000  at  3  per  cent 

3,000,000 
3,000,000 

-  9,000,000 


L.27,032,606 


Management  ol  national  debt,  ....  L.193,300 

Do.  loan,  .....  12,650 

Do.  lotteries,  ....  2,000 

Commission  for  receiving  property  duty,  .  .  3,154 

Interest  on  capital,  ....... 

Expenses,  ......  L. 239,000 

Stamps,  .......  42,000 


Dividend,  10  per  cent.  .  .  .  L.1,164,240 

Property  tax,  do.  .  .  .  172,233 


Profit, 


YEAR  COMMENCING  JANUARY  1809. 


Former  savings, 
Profit,.  1808,  . 


L.7,498,026 

385,865 


Bank  notes, 
Deposits, 


L.7,883,891 

19,000,000 

11,000,000 


t.oan  to  Government, 
Ditto,  without  interest, 
Cash  and  bullion, 


L.37,883,891 

L.3,000,000  at  3  per  cent., 

3,000,000 
3,000,000 

-  9,000,000 


L. 28, 883,891 


Management  of  national  debt,  .  .  .  L. 205, 500 

Do.  loan,  .  .  .  8,400 

Do.  lotteries,  ....  C,000 

Commission  for  receiving  property  duty,  .  .  3,154 


Interest  on  capital, 


L.90,000 


1,351,630 


L. 1,441, 630 


211,104 

350,604 

L.2,003,338 

281,000 
L. 1,722, 338 

1,336,473 


L.385.865 


L.90,000 


1,444,194 


220,054 

350,604 


Carry  forward. 


L.2,104,852 


and  secure  currency. 


Expenses, 

Stamps, 


Dividend  10  per  cent., 
Property  tax, 


Brought  over,  L. 2, 104,851 

L.246,000 
42,000 

-  288, 00C 


L.1,816,852 

L.1,164,240 

181,852 

- -  1,346,092 

Profit,  .  .  .  L.470.76C 


YEAR  COMMENCING  JANUARY  1810. 


Former  savings, 

L.7,883,891 

Profit,  ..... 

470,760 

L.8,354,651 

Bank  notes,  .  .  ... 

22,730,000 

Deposits,  .... 

11,000,000 

L.42,084,651 

Loan  to  Government,  .  L.3,000,000 

Ditto,  without  interest,  .  3,000,000 

Cash  and  bullion,  .  3,000,000 

9,000,000 

at  3  per  cent.,  L.90,000 

L. 33, 084, 651 

1,654,232 

L.  1,744,232 

Management  of  national  debt, 

L.200,800 

Do.  loan. 

11,080 

Do.  lotteries, 

3,000 

Commission  for  receiving  property  tax, 

3,154 

- 218,634 

Interest  on  capital, 

Deduct — 

350,604 

L.2,313,470 

Expenses,  .... 

. 

L.254,000 

Stamps,  .... 

42,000 

-  296,000 

L.2,017,470 

Dividend,  10  per  cent., 

. 

L.1,164,240 

Property  duty,  .... 

• 

201,747 

-  1,365,987 

Profit,  .  .  .  L. 651, 483 


YEAR  COMMENCING  JANUARY  1811. 

L.8,354,651 

651,483 


Former  savings, 
Profit,  1810, 


Carry  forward, 


L.9.006.134 


448 


PROPOSALS  FOR  AN  ECONOMICAL 


Brought 

Bank  notes, 

Deposits, 

over, 

L.9,006, 134 
23,547,000 
11,000,000 

Loan  to  Government, 

Ditto,  without  interest, 

Cash  and  bullion, 

L.3,000,000 

3,000,000 

3,000,000 

L.43,553,134 

9,000,000 

at  3  per  cent ,  L. 90, 000 

L.34,553,134 

1,727,765 

Management  of  national  debt. 

Do.  loan, 

Do.  lotteries, 

Do.  life  annuities, 

Commission  for  receiving  property  duty, 

Interest  on  capital, 

• 

L. 1,817,765 

L.2 11,300 

14,705 

4,000 

206 

3,454 

- - - -  233,662 

350,604 

Expenses, 

Stamps, 

Dividend,  10  per  cent., 

Property  tax, 

• 

• 

L.2, 402, 031 

L.264,000 

42,000 

306,000 

L.2, 096, 031 

L.  1,1 64,240 

209,603 

l  373  84a 

Profit, 

.  .  L.722,188 

YEAR  COMMENCING  JANUARY  1812. 


Former  savings, 

Profit,  1811, 

Bank  notes, 

Deposits, 

Loan  to  Government, 

L.3,000,000 

L.9,006, 134 
722,188 

L.9,728,322 

23,462,000 

11,000,000 

L.44, 190,322 

at  3  per  cent. 

L. 90, 000 

Ditto,  without  interest, 

Cash  and  bullion, 

Management  of  national  debt, 

3,000,000 

3,000,000 

9,000,000 

L.35, 190,322 

L.208,000 

1,759,516 

Do.  loans, 

19,031 

Do.  life  annuities, 

369 

Commission  for  receiving  property  duty, 

3,154 

Interest  on  capital. 

• 

• 

230,554 

350,604 

Expenses, 

L. 273, 000 

L.2, 430, 674 

Stamps,  ,  . 

- 

• 

42,000 

315,000 


Expenses, 

Stamps, 


Cany  forward, 


L.2,1 15,674 


AND  SECURE  CURRENCY 


449 


Brought  over, 

L.2,1 15,674 

Dividend,  10  per  cent., 

. 

L.l, 164, 240 

Property  duty,  . 

• 

211,567 

1,375,807 

L.739,867 

Profit, 

YEAR  COMMENCING  JANUARY  1813. 


Former  savings, 

L. 9, 728, 322 

1812, 

739,867 

L.10,468,189 

Bank  notes, 

24,080,000 

Deposits, 

1 1,000,000 

L.45,548,189 

Loan  to  Government, 

L. 3, 000, 000 

at  3  per  cent.,  L.90,000 

Ditto,  without  interest, 

3,000,000 

Cash  and  bullion,  . 

3,000,000 

9,000,000 

1,827,400 

L.36,548,189  - 

L.l, 9 17, 400 

Management  of  national  debt, 

L. 223, 100 

Do.  loan, 

. 

21,639 

Do.  do. 

2,000 

Do.  life  annuities, 

462 

Commission  for  receiving  property  duty, 

3,154 

250,355 

Interest  of  capital, 

350,604 

L. 2, 518, 359 

Expenses, 

. 

L.283,000 

Stamps, 

42,000 

325,000 

L.2,1 93,359 

Dividend,  10  per  cent., 

L.l, 164, 240 

Commission  for  receiving  property  duty, 

219,333 

1,383,573 

Profit,  .  .  .  L.809,786 

YEAR  COMMENCING  JANUARY  1814. 


Former  savings, 
1813,  . 


L.10,468,189 

809,786 


Bank  notes, 
Deposits, 


L.l  1,277,975 
27,840,000 
1 1,000,000 


Carry  forward, 


L.50, 117,975 


F  F 


450 


PROPOSALS  FOR  AN  ECONOMICAL 


Brought  over, 

Loan  to  Government  without 

interest,  .  .  L.3,000,000 

Cash  and  bullion,  .  3,000,000 

L.50,117,975 

6,000,000 

L.44, 11 7,975 

L.2,205,898 

Management  of  national  debt, 

L. 227, 000 

Do.  loan, 

42,200 

Do.  life  annuities, 

576 

Commission  for  receiving  property  duty, 

3,154 

272,930 

Interest  of  capital, 

.  .  • 

350,604 

L.2,829,432 

Expenses,  .... 

L. 292, 000 

Stamps,  .... 

42,000 

334,000 

L.2,495,432 

Dividend,  10  per  cent., 

.  L.l, 164,240 

Property  tax,  .... 

249,543 

1,413,783 

Profit, 

L.l, 081, 649 

YEAR  COMMENCING  JANUARY  1815. 


Former  sanrgs, 

L. 11, 277, 975 

1SU,  .... 

1,081,649 

Bank  notes, 

L.l  2,359,624 

27,300,000 

Deposits,  .... 

1 1,000,000 

Loan  to  Government,  L.3,000,000 

Cash  and  bullion,  .  3,000,000 

L.  50, 659, 624 

6,000.000 

L. 44.659, 624 

L.2,232,980 

Management  of  national  debt,  . 

L.250,000 

Do.  loan, 

28,800 

Do.  life  annuities. 

700 

Commission  for  receiving  property  tax, 

3,154 

Interest  on  capital, 

. 

282,654 

350,604 

Expenses, 

L.300,000 

L.2,866,238 

Stamps, 

87,500 

387,500 

L.2,478,738 

Dividend,  10  per  cent.,  . 

L.l, 164, 240 

Property  tax,  .... 

247,873 

1,412,113 

L.l, 066, 625 

Profit, 

AND  SECURE  CURRENCY. 


451 


JANUARY  1816. 


Former  savings, 
Savings,  1815, 


L.  13.426, -249 


L. 12,359,624 
1,066,625 


No.  VI. 

RESOLUTIONS  l’ROPOSED  CONCERNING  THE  BANK  OF  ENGLAND,  Bl'  MR  GRENFELL. 

1.  That  it  appears,  that  there  was  paid  by  the  public  to  the  Bank  of  England,  for 
managing  the  national  debt,  including  the  charge  for  contributions  on  loans  and 
lotteries,  in  the  year  ending  5th  of  July  1792,  the  sum  of  99,803/.  12s.  5d. ;  and  that 
there  was  paid  for  the  like  service,  in  the  year  ending  5th  April  1815,  the  sum  of 
281,568/.  6s.  lljd. ;  being  an  increase  of  181,764/.  14s.  6j-d.  In  addition  to  which, 
the  Bank  of  England  have  charged  at  the  rate  of  1,250/.  per  million  on  the  amount  of 
property  duty  received  at  the  Bank  on  profits  arising  from  professions,  trades,  and 
offices. 

2.  That  the  total  amount  of  bank  notes  and  bank  post  bills,  in  circulation  in  the 
years  1795  and  1796  (the  latter  being  the  year  previous  to  the  restriction  on  cash 
payments),  and  in  the  year  1814,  was  as  follows  : — 

1795,  1st  Feb.  L.12,735,520 ;  and  1st  Aug.  L.  11, 214, 000 

1796,  1st  Feb.  10,784,740;  and  1st  Aug.  9,856,110 

1814,  1st  Feb.  25,154,950  ;  and  1st  Aug.  28,802,450 

3.  That  at  present,  and  during  many  years  past,  more  particularly  since  the  year 
1806,  considerable  sums  of  public  money,  forming  together  an  average  stationary 
balance  amounting  to  many  millions,  have  been  deposited  with,  or  otherwise  placed 
in  the  custody  of  the  Bank  of  England,  acting  in  this  respect  as  the  bankers  of  the 
public. 

4.  That  it  appears,  from  a  report  ordered  to  be  printed  10th  of  August  1807,  from 
“  the  Committee  on  the  Public  Expenditure  of  the  United  Kingdom,”  that  the  aggregate 
amount  of  balances  and  deposits  of  public  money  in  the  hands  of  the  Bank  of 
England,  including  bank  notes  deposited  in  the  Exchequer,  made  up  in  four  different 
periods  of  the  quarter  ending  5th  January  1807,  fluctuated  betwixt  the  sums 

/  of L. II, 461, 200  1  including  bank  notes  deposited  in  the  chests  of  the 
£.‘-  I  and  12,198,236  )  Exchequer, 

«r 

[2  i  |  an(j  excluding  bank  notes  deposited  at  the  Exchequer. 

5.  That  the  aggregate  amount  of  such  deposits,  together  with  the  exchequer  bills 
and  bank  notes  deposited  in  the  chests  of  the  four  tellers  of  the  Exchequer,  was,  on 
an  average,  in  the  year  1814, 

L.l  1,966,371 ;  including  bank  notes  deDosited  at  the  Exchequer,  amounting  to 
642,264 
or 

11,324,107  ;  excluding  bank  notes  deposited  at  the  Exchequer. 

6.  That  it  appears,  that  this  aggregate  amount  of  deposits,  together  with  such 
portions  of  the  amount  of  bank  notes  and  bank  post  bills  in  circulation  as  may  have 
been  invested  by  the  Bank  in  securities  bearing  interest,  was  productive,  during  the 
same  period,  of  interest  and  profit  to  the  Bank  of  England. 

7.  That  the  only  participation  hitherto  enjoyed  by  the  public,  since  the  year  1806, 
in  the  profits  thus  made  on  such  deposits  by  the  Bank,  has  consisted  in  a  loan  of 
3  millions,  advanced  to  the  public  by  the  Bank,  by  the  46  Geo.  III.  cap.  41,  bearing 
3  per  cent,  interest;  which  loan  was  discharged  in  December  1814:  And  in  another 
loan  of  3  millions,  advanced  to  the  public  by  the  Bank,  by  the  48  Geo.  III.  cap.  3, 
free  of  any  charge  of  interest;  which  loan  became  payable  in  December  1814,  but 
has,  by  an  Act  of  the  present  session  of  Parliament,  cap.  16,  been  continued  to  the 
5th  of  A  pril  1816. 


452  PROPOSALS  FOR  AN  ECONOMICAL 

8.  That  this  house  will  take  into  early  consideration  tne  advantages  derived  by  the 
Bank,  as  well  from  the  management  of  the  national  debt,  as  from  the  amount  of 
balances  of  public  money  remaining  in  their  hands,  with  the  view  to  the  adoption  of 
such  an  arrangement,  when  the  engagements  now  subsisting  shall  have  expired,  ns 
may  be  consistent  with  what  is  due  to  the  interests  of  the  public,  and  to  the  rights, 
credit  and  stability,  of  the  Bank  of  England. 

13th  June  IS 1 5. 


No.  VII. 

RESOLUTIONS  PROPOSED  CONCERNING  THE  BANK  OF  ENGLANI  BY  MR  MELLIBH. 

1.  That  by  the  Act  of  31  Geo.  III.  cap.  33,  there  was  allowed  to  the  Bank  of 
England,  for  the  management  of  the  public  debt,  450 /.  per  million  on  the  capital  stock 
transferable  at  the  Bank,  amounting  in  the  year  ending  5th  July  1792,  to  98,803/. 
12s.  5d.  on  about  219,590,000/.  then  so  transferable  ;  and  that  by  the  Act  48  Geo.  III. 
cap.  4,  the  said  allowance  was  reduced  to  the  rate  of  340/.  per  million  on  all  sums  not 
exceeding  600  millions,  and  to  300/.  per  million  on  all  sums  exceeding  that  amount, 
whereby  the  Bank  was  entitled,  in  the  year  ending  5th  April  1815,  to  the  sum  of 
241,971/.  4s.  2^d.  on  about  726,570,700/.  capital  stock,  and  798/.  3s.  7d.  on  2,347,588/., 
3  per  cents,  transferred  for  life  annuities,  being  an  increase  of  143,965/.  15s.  4yd.  for 
management,  and  an  increase  of  about  509,322,000/.  capital  stock :  Also  the  Bank 
was  allowed  1000/.  for  taking  in  contributions,  amounting  to  812,500/.  on  a  lottery  in 
tbe  year  ending  5th  July  1792;  and  38,798/.  19s.  2d.  for  taking  in  contributions, 
amounting  to  46,585,533/.  6s.  8d.  on  loans  and  lotteries  in  the  year  ending  5th  April 
1815. 

2.  That  it  appears,  that  the  Bank,  in  pursuance  of  the  Act  46  Geo.  III.  cap.  65, 
has,  from  the  year  1806  to  the  present  time,  made  the  assessments  of  the  duty  on 
profits  arising  from  property,  on  the  proprietors  of  the  whole  of  the  funded  debt, 
transferable  at  the  Bank  of  England,  and  has  deducted  the  said  duty  from  each  of 
the  several  dividend  warrants,  which  in  one  year,  ending  5th  April  1815,  amounted 
in  number  to  565,600  ;  and  that  this  part  of  the  business  has  been  done  without  any 
expense  to,  or  charge  on,  the  public. 

That  in  pursuance  of  the  above-mentioned  Act,  the  duties  so  deducted  have  from 
time  to  time  been  placed  to  the  “  account  of  the  commissioners  of  the  treasury,  on 
account  of  the  said  duties,”  together  with  other  sums  received  from  the  public  by 
virtue  of  the  said  Act :  part  of  this  money  is  applied  to  the  payment  of  certificates  of 
allowances,  and  the  remainder  is  paid  into  the  Exchequer. 

That  by  virtue  of  the  said  Act,  the  Lords  Commissioners  of  the  Treasury  have 
made  annual  allowances,  at  the  rate  of  1,250/.  per  million,  upon  the  amount  so  placed 
to  the  account  of  the  Commissioners  of  the  Treasury  at  the  Bank  of  England,  as  a 
compensation  for  receiving,  paying,  and  accounting  for  the  same  ;  which  allowances, 
however,  have  not  in  any  one  year  exceeded  the  sum  of  3,480/.,  and  upon  an  average 
of  eight  years  have  amounted  annually  to  3,154/.  only. 

The  amount  of  duties  received  for  the  year  ending  5th  April  1814,  was  2,784,343/., 
which,  if  it  had  been  collected  in  the  usual  manner,  at  an  allowance  of  5d.  per  pound, 
would  have  cost  the  public  58,007/.  ;  and  the  cost  for  collecting  20,188,293/.,  being  the 
whole  of  the  duty  received  from  1806  to  1814,  on  which  allowances  have  been  made, 
would  at  the  same  rate  have  amounted  to  420,589/. 

That  all  monies  received  by  the  Bank  on  account  of  duties  on  property  are  paid  into 
the  Exchequer  immediately  after  the  receipt  thereof :  when  this  circumstance  is 
contrasted  with  the  ordinary  progress  of  monies  into  the  Exchequer,  the  advantage 
resulting  to  the  public  may  be  fairly  estimated  at  2  per  cent.,  which,  on  the  amount 
of  duties  for  the  year  ending  5th  April  1814,  would  be  55,686/.,  and,  on  the  total 
amount  from  1806  to  1814,  would  be  403,765/. 

3.  That  the  total  amount  of  bank  notes  and  bank  post  bills  in  circulation  in  the 

years  1795  and  1796  (the  latter  being  the  year  previous  to  the  restriction  on  cash 

payments),  and  in  the  year  1814,  was  as  follows  : — - 

1795,  1st  Feb.  L.  12, 735, 520  ;  and  1st  Aug.  L.l  1,214,000 

1796,  1st  Feb.  10,784,740  ;  and  1st  Aug.  9,856,110 

1314,  1st  Feb.  25.154,950;  and  1st  Aug.  28,802.450 


AND  SECURE  CURRENCY. 


453 


4.  That  at  present,  and  during  many  years  past,  both  before  and  since  the  renewal 
of  the  charter  of  the  Bank,  considerable  sums  of  the  public  money  have  been  deposited 
with  or  otherwise  placed  in  the  custody  of  the  Governor  and  Company  of  the  Bank 
of  England,  who  act  in  this  respect  as  the  banker  of  the  public.  The  average 
balances  of  these  deposits,  both  before  and  after  the  renewal  of  the  charter,  were  as 
follows : — 

Public  balances  on  an  average  of  one  year  ending  the  1  5th  January  1800,  L.  1,724, 747 
Unclaimed  dividends  for  the  average  of  one  year  ending  1st  January  1800,  837,906 

L. 2, 562, 7 13 


Public  balances  on  an  average  of  eight  years,  from  1807  to  1815,  .  L. 4, 375, 405 

Unclaimed  dividends,  do.  do.  .  634,614 

L. 5, 010, 019 


5.  That  it  appears  from  a  report  ordered  to  he  printed  10th  August  1807,  from  “the 
Committee  on  Public  Expenditure  of  the  United  Kingdom,”  that  the  aggregate  amount 
of  balances  and  deposits  of  public  money  in  the  Bank  of  England,  including  bank  notes 
deposited  in  the  Exchequer,  made  up  in  four  different  periods  of  the  quarter  ending 
5th  January  1807,  fluctuated  between  the  sums  of  11,461,200/.  and  12,198,236/.;  or, 
excluding  bank  notes  deposited  at  the  Exchequer,  the  amount  fluctuated  between 
8.178,536/.  and  9,948,400/.,  the  reason  for  which  exclusion  is  not  obvious,  as  by  the 
Act  of  48  Geo.  III.  cap.  3,  the  tellers  of  the  Exchequer  are  authorised  to  take  as 
securities  on  monies  lodged,  either  exchequer  bills  or  notes  of  the  Governor  and 
Company  of  the  Bank  of  England.  And  it  also  appears,  according  to  accounts  laid 
before  this  house  in  the  present  session  of  Parliament,  that  the  aggregate  amount  of 
such  deposits,  together  with  the  exchequer  bills  and  bank  notes  deposited  in  the  chests 
of  the  four  tellers  of  the  Exchequer,  was,  on  an  average,  in  the  year  1814 — 

E.l  1,966,371  ;  including  bank  notes  deposited  at  the  Exchequer,  amounting  to  642,264/. 

11,324,107 ;  excluding  bank  notes  deposited  at  the  Exchequer. 

6.  That  it  appears,  according  to  accounts  before  this  house,  that  the  average  of  the 
aggregate  amount  of  balances  of  public  money  in  the  hands  of  the  Bank  of  England, 
from  February  1807  to  February  1815,  was  5,010,019/. ;  and  that  the  average  of  bills 
and  bank  notes  deposited  in  the  chests  of  the  four  tellers  of  the  Exchequer,  from 
August  1807  to  April  1815,  was  5,968,793/.,  making  together  10,978,812/.,  being  850,906/. 
less  than  the  average  of  the  said  accounts  for  one  year  ending  5th  January  1807,  as 
stated  in  the  report  of  the  Committee  on  the  Public  Expenditure. 

7.  That  by  the  39  and  40  Geo.  III.  cap.  28,  extending  the  charter  of  the  Bank  for 
twenty-one  years,  the  Bank  advanced  to  the  public  3,000,000/.  for  six  years  without 
interest,  and  extended  the  loan  of  11,686,800/.  for  twenty-one  years  at  an  interest  of 
3  per  cent,  per  annum,  as  a  consideration  for  the  privileges,  profits,  emoluments, 
benefits,  and  advantages  granted  to  the  Bank  by  such  extension  of  its  charter. 

That  the  interest  of  3,000,000/.  for  six  years,  at  5  per  cent,  per  annum,  is  L. 900.000 
That  the  ditlerence  between  3  per  cent,  and  5  per  cent,  on  11,686,800/. 

is  233,736/.,  which  in  twenty-one  years  amounts  to  .  .  4.908,456 

That  the  above  loan  of  3,000,000/.  was  continued  to  the  public  from  1806, 
when  it  became  payable,  until  1814,  at  an  interest  of  3  per  cent., 
making  an  advantage  in  favour  of  the  public  of  2  per  cent.,  or 
60,000/.  per  annum,  which  in  eight  years  and  eight  months 
amounts  to  .  .  .  .  .  .  .  .  520,000 

That  in  1808,  the  Bank  advanced  to  the  public  3.000,000/.  without 
interest,  which,  by  an  Act  of  the  present  session,  is  to  remain 
without  interest  until  the  5th  of  April  1816;  the  interest  on  this 
advance,  at  5  per  cent.,  will,  for  eight  years,  amount  to  .  1,200,000 

8.  That  by  the  39  and  40  Geo.  III.  cap.  28,  sec.  13,  it  is  enacted,  that  during  the 
continuance  of  the  charter,  the  Bank  shall  enjoy  all  privileges,  profits,  emoluments, 
benefits,  and  advantages  whatsoever,  which  they  now  possess  and  enjoy  by  virtue  of 
ativ  employment  hv  or  on  behalf  of  the  public. 

That,  previously  to  such  renewal  of  their  charter,  the  Bank  was  employed  as  the 


454  PROPOSALS  FOR  AN  ECONOMICAL  AND  SECURE  CURRENCY. 


public  banker,  in  keeping  the  cash  of  all  the  principal  departments  in  the  receipt  ol 
the  public  revenue,  and  in  issuing  and  conducting  the  public  expenditure. 

That  the  average  amount  of  the  public  balances  in  the  hands  of  the  Bank,  between 
the  1st  February  1814  and  the  15th  January  181 5,  upon  accounts  opened  at 
the  Bank  previously  to  the  renewal  of  the  charter  on  the  28th  March  1800, 
was  L.4,337,025 

Unclaimed  dividends  for  the  average  of  one  year  ending  1st  January  1815,  779,794 

L.5,116,819 


That  the  average  public  balances  in  the  hands  of  the  Bank  during  the  same  period, 
upon  accounts  opened  at  the  Bank  between  the  28th  March  1800  and  the  27th 
February  1S08,  was  L.370,018 

That  the  average  public  balances  in  the  hands  of  the  Bank  during  the 
same  period,  upon  accounts  opened  at  the  Bank  subsequent  to  the 
27th  February  1808,  was  L.261,162 


9.  That  whenever  the  engagements  now  subsisting  between  the  public  and  the 
Bank  shall  expire,  it  may  be  proper  to  consider  the  advantages  derived  by  the  Bank 
from  its  transactions  with  the  public  with  a  view  to  the  adoption  of  such  arrangements 
as  may  be  consistent  with  those  principles  of  equity  and  good  faith  which  ought  to 
prevail  in  all  transactions  between  the  public  and  the  Bank  of  England 


June  26,  1815 


ON 


PROTECTION 


AGRICULTURE. 


FOURTH  EDITION. 


LONDON. 


1822. 


INTRODUCTION. 


It  cannot,  I  think,  be  denied,  that,  within  these  few  years,  great 
progress  has  been  made  in  diffusing  correct  opinions  on  the  impolicy 
of  imposing  restrictions  on  the  importation  of  foreign  corn  ;  but, 
unhappily,  much  prejudice  yet  exists  on  this  subject,  and  it  is  to  be 
feared  that  the  generally  prevailing  errors  in  the  minds  of  those  who 
are  suffering  from  the  distressed  state  of  our  agriculture,  may  lead 
to  measures  of  increased  restriction,  rather  than  to  the  only  effectual 
remedy  for  those  distresses,  the  gradual  approach  to  a  system  of 
free  trade.  It  is  to  the  present  corn-law  that  much  of  the  distress 
is  to  be  attributed,  and  1  hope  to  make  it  appear,  that  the  occupa¬ 
tion  of  a  farmer  will  be  exposed  to  continual  hazard,  and  will  be 
placed  under  peculiar  disadvantages,  as  compared  with  all  other 
occupations,  while  any  system  of  restriction  on  the  importation  of 
foreign  corn  is  continued,  which  shall  have  the  effect  of  keeping 
the  price  of  corn  in  this  country  habitually  and  considerably  above 
the  prices  of  other  countries. 

Before  I  proceed,  however,  to  this,  which  is  the  main  object  that 
.1  have  in  view,  I  wish  to  notice  some  of  the  prevailing  opinions 
which  are  daily  advanced  on  the  subject  of  the  causes  of  the  present 
distress ;  on  the  doctrine  of  remunerating  price  ;  on  taxation  ;  on 
currency,  &c. :  after  disposing  of  these,  we  shall  be  better  able  to 
examine  the  important  question  of  what  ought  to  be  the  permanent 
regulations  of  this  country,  respecting  the  trade  in  corn,  in  order  to 
afford  the  greatest  security  to  the  people,  for  a  cheap  and  steady 
[•rice,  with  an  abundant  supply  of  that  essential  article. 


OX  PROTECTION  TO  AGRICULTURE. 


SECTION  r. 

On  Remunerating  Price. 

The  words  Remunerative  Price  are  meant  to  denote  the  price  at 
which  corn  can  be  raised,  paying  all  charges,  including  rent,  and 
leaving  to  the  grower  a  fair  profit  on  his  capital.  It  follows  from 
this  definition,  that  in  proportion  as  a  country  is  driven  to  the  cul¬ 
tivation  of  poorer  lands  for  the  support  of  an  increasing  population, 
the  price  of  corn,  to  be  remunerative,  must  rise  :  for  even  if  no  rent 
is  paid  for  such  poorer  land — as  the  charges  on  its  cultivation  must, 
for  the  same  quantity  of  produce,  be  greater  than  on  any  other  land 
previously  cultivated,  those  charges  can  only  be  returned  to  the 
grower  by  an  increase  of  price.  “  I  know  districts  of  the  country,”* 
says  Mr  Iveson,  “  taking  the  very  best  qualities  in  them,  that  will 
produce  from  four  to  five  quarters  by  the  acre.  I  know  there  are 
farms  that  have  averaged  in  the  wheat  crop,  four  quarters  to  the 
acre,  or  32  bushels.”  “  In  what  part  of  the  kingdom? — In  Wiltshire.” 
“  What  would  you  estimate  the  second  quality  of  land  at? — I  think 
the  middling,  or  second,  what  I  should  call  the  middling  quality  of 
lands  under  good  cultivation,  may  be  taken  at  two  quarters  and  a 
half.”  “  And  the  inferior  lands? — From  12  to  15  bushels  an  acre.” 
Mr  Harvey  was  asked,  “  What  is  the  lowest  rent  you  have  ever 
known  to  be  paid  for  the  worst  land  on  which  corn  is  raised  ? — 
Eighteen- pence  an  acre.”  Mr  Harvey  further  stated,  that  on  an 
average  of  the  last  ten  years  he  had  obtained  30  bushels  of  wheat 
per  acre  from  his  land.  Mr  Wakefield’s  evidence  was  to  the  same 
effect  as  Mr  Iveson’s  ;  but  the  difference  according  to  him  between 
the  produce  of  wheat  per  acre  on  the  best  and  worst  land  in  cul¬ 
tivation  was  as  much  as  32  bushels  ;  for  he  said  “  that  on  the  sea 
coast  of  Norfolk,  Suffolk,  Essex,  and  Kent,  the  crop  is  thought  a 
bad  one,  if  it  be  not  40  bushels  per  acre  ;”  and  he  added,  “  I  do 
not  believe  that  the  very  poor  lands  produce  above  eight  bushels 
per  acre.” 


Report,  Agricultural  Committee,  1821,  page  338. 


460 


ON  PROTECTION  TO  AGRICULTURE. 


Suppose  now.  that  the  population  of  England  had  only  been  one- 
half  its  present  amount,  and  that  it  had  not  been  necessary  to  take 
any  other  quality  of  land  into  cultivation  than  that  which  yielded 
32  bushels  of  wheat  per  acre  ;  what  would  have  been  the  remunera¬ 
tive  price  ?  Can  any  one  doubt  of  its  being  so  low  that,  if  the 
prices  on  the  Continent  had  been  at  the  same  average  at  which 
they  have  been  for  the  last  five  or  ten  years,  we  should  have  been 
an  exporting  instead  of  an  importing  country  ?  It  is  true,  that  this 
land  now  yields  32  bushels,  and  would  have  yielded  no  more  on  the 
supposition  that  I  have  made ;  but  is  it  not  true,  that  the  value  of 
the  32  bushels  now  raised  is  regulated  by  the  cost  of  producing  the 
12  or  15  bushels  on  the  inferior  lands  of  which  Mr  Iveson  speaks? 
If  the  cost  of  raising  15  bushels  of  wheat  is  as  great  now  as  the  cost 
was  of  raising  30  bushels  formerly,  the  price  must  be  doubled  to  be 
remunerative,  for  the  degree  in  which  the  price  must  rise  to  com¬ 
pensate  the  producer  for  the  charges  which  he  has  to  pay  does  not 
depend  on  the  quantity  produced,  nor  on  the  quantity  consumed, 
but  on  the  cost  of  its  production.  The  difference  in  the  value  of 
the  quantity  raised  on  the  good  land,  and  on  the  inferior  land,  will 
always  constitute  rent ;  so  that  the  profits  of  the  occupiers  of  the 
good  and  bad  land  will  be  the  same,  but  the  rent  of  the  best  land 
will  exceed  the  rent  of  the  worst  by  the  difference  in  the  quantity 
of  produce,  which,  with  the  same  expense,  it  can  be  made  to  yield. 
It  is  now  universally  admitted,  that  rent  is  the  effect  of  the  rise  in 
the  price  of  corn,  and  not  the  cause  ;  it  is  also  admitted,  that  the 
only  permanent  cause  of  rise  in  the  value  of  corn,  is  an  increased 
charge  on  its  production,  caused  by  the  necessity  of  cultivating 
poorer  lands ;  on  which,  by  the  expenditure  of  the  same  quantity 
of  labour,  the  same  quantity  of  produce  cannot  be  obtained. 

Is  it  not  true  that  the  rent  on  the  better  land  is  regulated  bv  the 
lesser  quantity  of  15  bushels,  with  which  we  are  now  obliged  to 
be  contented  on  our  poorer  lands  ?  The  rent  which  is  now  a  charge 
on  cultivating  the  land  which  yields  the  32  bushels,  and  which  is 
equal  to  the  value  of  17  bushels,  the  difference  between  15  and  32 
bushels,  could  not  have  existed  if  no  land  was  cultivated  but  such 
as  yielded  32  bushels.  If,  then,  with  the  charge  of  rent,  the  cost  of 
raising  15  bushels  on  the  rich  land — and  without  the  payment  of 
rent,  the  cost  of  raising  the  same  quantity  on  the  poor  land,  is  now 
as  great  as  the  cost  of  raising  30  bushels  was  formerly  on  the  rich 
land,  when  no  rent  was  paid,  the  price  must  be  doubled. 

It  appears,  then,  that,  in  the  progress  of  society,  when  no  impor¬ 
tation  takes  place,  we  are  obliged  constantly  to  have  recourse  to 
worse  soils  to  feed  an  augmenting  population,  and  with  every  step 
of  our  progress  the  price  of  corn  must  rise,  and  with  such  rise,  the 
rent  of  the  better  land  which  had  been  previously  cultivated,  will 
necessarily  be  increased.  A  higher  price  becomes  necessary  to 
compensate  for  the  smaller  quantity  which  is  obtained  ;  but  this 
higher  price  must  never  be  considered  as  a  good — it  would  not  have 


ON  PROTECTION  TO  AGRICULTURE. 


401 


existed  if  the  same  return  had  been  obtained  with  less  labour — it 
would  not  have  existed  if,  by  the  application  of  labour  to  manufac¬ 
tures,  we  had  indirectly  obtained  the  corn  by  the  exportation  of 
those  manufactures  in  exchange  for  corn.  A  high  price,  if  the 
effect  of  a  high  cost,  is  an  evil,  and  not  a  good  ;  the  price  is  high, 
because  a  great  deal  of  labour  is  bestowed  in  obtaining  the  corn. 
If  only  a  little  labour  was  bestowed  upon  it,  more  of  the  labour  of 
the  country,  which  constitutes  its  only  real  source  of  wealth,  would 
have  been  at  its  disposal  to  procure  other  enjoyments  which  are 
desirable. 


SECTION  II. 

On  the  Influence  of  a  Rise  of  Wages  on  the  Price  of  Corn. 

Much  of  what  has  been  said  in  the  foregoing  section,  would  probably 
be  allowed  by  some  of  those  who  are  the  advocates  for  a  restricted 
trade  in  corn  ;  they  would,  however,  add,  that  though  it  could  be 
shown  that  no  protecting  duties  on  the  importation  of  corn  could 
be  justifiable,  merely  on  account  of  the  increased  expenditure  of 
labour  necessary  to  obtain  a  given  quantity  in  this  country  ;  yet 
such  duties  were  necessary  to  protect  the  farmer  against  the  effects 
of  high  wages  in  this  country,  caused  by  the  taxation  which  falls 
on  the  labouring  classes,  and  which  must  be  repaid  to  them  by  their 
employers,  by  means  of  high  wages.  This  argument  proceeds  on 
the  assumption,  that  high  wages  tend  to  raise  the  price  of  the  com¬ 
modities  on  which  labour  is  bestowed.  If  the  farmer,  they  say, 
could,  before  taxation,  and  the  high  wages  which  are  the  effect  of 
it,  compete  with  the  foreign  grower  of  corn,  he  can  no  longer  do  so 
now  he  is  exposed  to  a  burthen  from  which  his  competitor  is  free. 

This  whole  argument  is  fallacious,— the  farmer  is  placed  under 
no  comparative  disadvantage  in  consequence  of  a  rise  of  wages. 
If,  in  consequence  of  taxes  paid  by  the  labouring  class,  wages 
should  rise,  which  they  in  all  probability  would  do,  they  would 
equally  affect  all  classes  of  producers.  If  it  be  deemed  necessary 
that  corn  should  rise  in  order  to  remunerate  the  growers,  it  is  also 
necessary  that  cloth,  hats,  shoes,  and  every  other  commodity  should 
rise,  in.  order  to  remunerate  the  producers  of  those  articles.  Either, 
then,  corn  ought  not  to  rise,  or  all  other  commodities  should  rise 
along  with  it. 

If  neither  corn,  nor  any  other  commodity,  rise,  they  will  of  course 
be  all  of  the  same  relative  value  as  before  ;  and  if  they  do  all  rise, 
the  same  will  be  true.  All  must  require  protecting  duties,  or  none. 
To  impose  protecting  duties  on  all  commodities  would  be  absurd, 
because  nothing  would  be  gained  by  it — it  would  in  no  way  alter 
the  relative  value  of  commodities ;  and  it  is  only  by  altering  the 


462 


ON  PROTECTION  TO  AGRICULTURE. 


relative  value  of  commodities  that  any  particular  trade  is  protected, 
not  merely  by  an  alteration  of  price.  If  England  gave  a  yard  of 
superfine  cloth  to  Germany  for  a  quarter  of  wheat,  she  would 
neither  be  more  nor  less  disposed  to  carry  on  this  trade,  if  both 
cloth  and  corn  were  raised  20  per  cent,  in  price.  All  foreign  trade 
finally  resolves  itself  into  an  interchange  of  commodities  ;  money  is 
but  the  measure  by  which  the  respective  quantities  are  ascertained. 
No  commodity  can  be  imported  unless  another  commodity  is 
exported  ;  and  the  exported  commodity  must  be  equally  raised  in 
price  by  the  rise  of  wages.  It  is  essential  that  a  drawback  should 
be  allowed  on  the  exported  article,  if  the  one  imported  be  protected 
by  a  duty.  But  it  comes  to  the  same  thing,  if  no  drawback  be 
allowed  on  the  one,  nor  protection  granted  to  the  other,  because,  in 
either  case,  precisely  the  same  quantity  of  the  foreign  commodity  will 
be  obtained  for  a  given  quantity  of  the  home-made  commodity. 

If  a  quarter  of  corn  be  raised  from  60s.  to  75s.,  or  25  per  cent, 
by  a  rise  of  wages,  and  a  certain  quantity  of  hats  or  cloth  be  raised 
in  the  same  proportion  by  the  same  cause,  the  importer  of  corn  into 
England  would  lose  just  as  much  by  the  commodity  which  he 
exports  as  he  would  gain  by  the  corn  which  he  imports.  If  trade 
vrere  left  free,  corn  would  not  rise  from  60s.  to  75s.,  notwithstanding 
the  rise  of  wages ;  nor  would  cloth,  or  hats,  or  shoes,  rise  from  this 
cause.  But,  if  I  should  allow  that  they  would  rise,  it  would  make 
no  difference  to  my  argument ;  we  should  then  export  money  in 
exchange  for  corn,  because  no  commodity  could  be  so  profitably 
employed  in  paying  for  it ;  for,  by  the  supposition,  every  other 
commodity  is  raised  in  price.  The  exportation  of  money  would 
gradually  lessen  the  quantity,  and  raise  its  value  in  this  country, 
while  the  importation  of  it  into  other  countries  would  have  a  con¬ 
trary  effect  in  them  ;  it  would  increase  the  quantity,  and  sink  its 
value,  and  thus  the  price  of  corn,  of  cloth,  of  hats,  and  of  all  other 
things  in  England,  would  bear  the  same  relation  to  the  prices  of 
the  same  commodities  in  other  countries  as  they  bore  before  wages 
were  raised.  In  all  cases,  the  rise  of  wages,  when  general,  diminishes 
profits,  and  does  not  raise  the  prices  of  commodities.  If  the  prices 
of  commodities  rose,  no  producer  would  be  benefited  ;  for  of  what 
consequence  could  it  be  to  him  to  sell  his  commodity  at  an  advance 
of  25  per  cent.,  if  he,  in  his  turn,  were  obliged  to  give  25  per  cent, 
more  for  every  commodity  which  he  purchased  ?  He  would  be  pre¬ 
cisely  in  the  same  condition,  whether  he  sold  his  corn  for  25  per  cent, 
advance,  and  gave  an  additional  25  per  cent,  in  the  price  of  his 
hats,  shoes,  clothes,  &c.,  &o.,  as  if  he  sold  his  corn  at  the  usual 
price,  and  bought  all  the  commodities  which  he  consumed  at  the 
prices  which  he  had  before  given  for  them.  No  one  class  of  pro 
ducers,  then,  is  entitled  to  protection  on  account  of  a  rise  of  wages, 
because  a  rise  of  wages  equally  affects  all  producers ;  it  does  not 
raise  the  prices  of  commodities  because  it  diminishes  profits  ;  and, 
if  it  did  raise  the  price  of  commodities,  it  would  raise  them  all  in 


ON  PROTECTION  TO  AGRICULTURE. 


463 

the  same  proportion,  and  would  not,  therefore,  alter  their  exchange¬ 
able  value.  It  is  only  when  commodities  are  altered  in  relative 
value,  bv  the  interference  of  Government,  that  any  tax,  which  shall 
act  as  a  protection  against  the  importation  of  a  foreign  commodity, 
can  be  justifiable. 

It  is  by  many  supposed,  that  a  rise  in  the  price  of  corn  will  raise 
the  price  of  all  other  things  ;  this  opinion  is  founded  on  the  erroneous 
view  which  they  take  of  the  effect  of  a  general  rise  of  wages.  Corn 
rises  because  it  is  more  difficult  to  produce,  and  its  cost  is  raised  ; 
it  would  be  no  rise  at  all  if  all  other  things  rose  with  it.  It  is  a 
real  rise  to  the  hatter  and  clothier,  if  they  are  obliged,  one  to  give 
more  hats,  the  other  more  cloth,  for  their  corn  ;  it  would  be  no  rise 
at  all  to  them,  and  it  would  be  impossible  to  show  who  paid  for 
the  increased  cost,  if  their  commodities  also  rose,  and  exchanged 
for  the  same  quantity  of  corn. 

It  may  be  laid  down  as  a  principle,  that  any  cause  which  operates 
in  a  country  to  affect  equally  all  commodities,  does  not  alter  their 
relative  value,  and  can  give  no  advantage  to  foreign  competitors, 
but  that  any  cause  which  operates  partially  on  one  does  alter  its 
value  to  others,  if  not  countervailed  by  an  adequate  duty  ;  it  will 
give  advantage  to  the  foreign  competitor,  and  tend  to  deprive  us  of 
a  beneficial  branch  of  trade. 


SECTION  III. 

On  the  Effects  of  Taxes  imposed  on  a  particular  Commodity. 

For  the  same  reasons  that  protecting  duties  are  not  justifiable  on 
account  of  the  rise  of  wages  generally,  from  whatever  cause  it  may 
proceed,  it  is  evident  that  they  are  not  to  be  defended  when  taxa¬ 
tion  is  general,  and  equally  affects  all  classes  of  producers.  An 
income  tax  is  of  this  description  ;  it  affects  equally  all  who  employ 
capital,  and  it  has  never  yet  been  suggested  by  those  most  favour¬ 
able  to  protecting  duties  that  any  would  be  necessary  on  account 
of  an  income  tax.  But  a  tax  affecting  equally  all  productions  is 
precisely  of  the  same  description  as  an  income  tax,  because  it  leaves 
them,  after  the  tax,  of  the  same  relative  value  to  each  other  as 
before  it  was  imposed.  The  rise  of  wages,  a  tax  on  income,  or  a 
proportional  tax  on  all  commodities,  all  operate  in  the  same  way ; 
they  do  not  alter  the  relative  value  of  goods,  and  therefore  they  do 
not  subject  us  to  any  disadvantage  in  our  commerce  with  foreign 
countries.  We  suffer  indeed  the  inconvenience  of  paying  the  tax, 
but  from  that  burthen  we  have  no  means  of  freeing  ourselves. 

A  tax,  however,  which  falls  exclusively  on  the  producers  of  a 
particular  commodity  tends  to  raise  the  price  of  that  commodity, 


I 


4G4 


ON  PROTECTION  TO  AGRICULTURE. 


I 

(] 

and  if  it  did  not  so  raise  it  the  producer  would  be  under  a  disad¬ 
vantage  as  compared  with  all  other  producers;  he  would  no  longer 
gain  the  general  and  ordinary  profits  by  his  trade.  By  rising  in 
price,  the  value  of  this  commodity  is  altered  as  compared  with  other 
commodities.  If  no  protecting  duty  is  imposed  on  the  importation 
of  a  similar  commodity  from  other  countries,  injustice  is  done  to  the 
producer  at  home,  and  not  only  to  the  producer  but  to  the  country 
to  which  he  belongs.  It  is  for  the  interest  of  the  public  that  he 
should  not  be  driven  from  a  trade  which,  under  a  system  of  free 
competition,  he  would  have  chosen,  and  to  which  he  would  adhere 
if  every  other  commodity  were  taxed  equally  with  that  which  he 
produces.  A  tax  affecting  him  exclusively  is,  in  fact,  a  bounty  to 
that  amount  on  the  importation  of  the  same  commodity  from 
abroad  ;  and  to  restore  competition  to  its  just  level,  it  would  be 
necessary  not  only  to  subject  the  imported  commodity  to  an  equal 
tax,  but  to  allow  a  drawback  of  equal  amount,  on  the  exportation  of 
the  home-made  commodity. 

The  growers  of  corn  are  subject  to  some  of  these  peculiar  taxes, 
such  as  tithes,  a  portion  of  the  poor’s  rate,  and  perhaps,  one  or  two 
other  taxes,  all  of  which  tend  to  raise  the  price  of  corn,  and  other 
raw  produce,  equal  to  these  peculiar  burthens.  In  the  degree,  then, 
in  which  these  taxes  raise  the  price  of  corn,  a  duty  should  be  im¬ 
posed  on  its  importation.  If  from  this  cause  it  be  raised  10s.  per 
quarter,  a  duty  of  10s.  should  be  imposed  on  the  importation  ot 
foreign  corn,  and  a  drawback  of  the  same  amount  should  be  allowed 
on  the  exportation  of  corn.  By  means  of  this  duty  and  this  draw¬ 
back,  the  trade  would  be  placed  on  the  same  footing  as  if  it  had 
never  been  taxed,  and  we  should  be  quite  sure  that  capital  would 
neither  be  injuriously  for  the  interests  of  the  country,  attracted 
towards,  nor  repelled  from  it. 

The  greatest  benefit  results  to  a  country  when  its  Government 
forbears  to  give  encouragement,  or  oppose  obstacles,  to  any  dis¬ 
position  of  capital  which  the  proprietor  may  think  most  advantageous 
to  him.  By  imposing  tithes,  &c.  on  the  farmer  exclusively,  no 
obstacle  would  be  opposed  to  him,  if  there  were  no  foreign  compe¬ 
tition,  because  he  would  be  able  to  raise  the  price  of  his  produce, 
and  if  he  could  not  do  so  he  would  quit  a  trade  which  no  longer 
afforded  him  the  usual  and  ordinary  profits  of  all  other  trades.  But 
if  importation  was  allowed,  an  undue  encouragement  would  be  given 
to  the  importation  of  foreign  corn,  unless  the  foreign  commodity 
were  subject  to  a  duty,  equal  to  tithes  or  any  other  exclusive  tax 
imposed  on  the  home  grower. 

But  the  home  grower  would  still  have  to  complain,  if  he  was 
refused  a  drawback  on  exportation,  because  he  might  then  say, 
u  Before  your  duty,  and  before  the  price  of  my  produce  was  raised 
in  consequence  of  it,  I  could  compete  with  the  foreign  grower  in, 
foreign  markets  ;  by  making  the  remunerating  price  of  my  corn 
higher,  you  have  deprived  me  of  that  advantage,  therefore  give  me 


i 


ON  PROTECTION  TO  AGRICULTURE. 


465 


a  drawback  equal  to  the  duty,  and  you,  in  every  respect,  restore 
me  to  the  position,  as  it  regards  both  my  own  countrymen,  as 
producers  of  other  commodities,  and  foreign  growers  of  raw  produce, 
in  which  I  was  before  placed.”  On  every  principle  of  justice,  and 
consistently  with  the  best  interests  of  the  country,  his  demand 
should  be  acceded  to. 


SECTION  IV. 

On  the  Effect  of  Abundant  Crops  on  the  Price  of  Com. 

In  a  former  section  I  have  endeavoured  to  show,  that  the  price  of 
corn,  to  be  remunerative,  must  pay  all  the  charges  of  its  production, 
including  in  those  charges  the  ordinary  profits  of  the  stock  em¬ 
ployed.  It  is,  in  fact,  by  these  conditions  being  fulfilled,  that  the 
supply,  on  an  average  of  years,  is  regulated.  If  the  price  obtained 
be  less  than  remunerative,  profits  will  be  depressed,  or  will  entirely 
disappear.  If  it  be  more  than  remunerative,  profits  will  be  high. 
In  the  first  case,  capital  will  be  withdrawn  from  the  land,  and  the 
supply  will  gradually  conform  to  the  demand.  In  the  second  case, 
capital  will  be  attracted  to  the  land,  and  the  supply  will  be  increased. 
But,  notwithstanding  this  tendency  of  the  supply  of  corn  to  con¬ 
form  itself  to  the  demand,  at  prices  which  shall  be  remunerative,  it 
is  impossible  to  calculate  accurately  on  the  effects  of  the  seasons. 
Sometimes,  for  a  few  years  successively,  crops  will  be  abundant ; 
at  other  times  they  will,  for  an  equal  period,  be  scanty  and  insuffi¬ 
cient.  When  the  quantity  of  corn  at  market,  from  a  succession  of 
good  crops,  is  abundant,  it  falls  in  price,  not  in  the  same  proportion 
as  the  quantity  exceeds  the  ordinary  demand,  but  very  considerably 
more.  The  demand  for  corn,  with  a  given  population,  must  neces¬ 
sarily  be  limited  ;  and,  although  it  may  be,  and  undoubtedly  is, 
true,  that  when  it  is  abundant  and  cheap,  the  quantity  consumed 
will  be  increased,  yet  it  is  equally  certain,  that  its  aggregate  value 
will  be  diminished.  Suppose  14  millions  of  quarters  of  wheat  to  be 
the  ordinary  demand  of  England,  and  that,  from  a  very  abundant 
season,  21  millions  are  produced.  If  the  remunerative  price  were 
3/.  per  quarter,  and  the  value  of  the  14  millions  of  quarters 
42,000,000/.,  there  cannot  be  the  least  doubt,  that  the  21  millions  of 
quarters  would  be  of  very  considerably  less  value  than  42,000,000/. 
No  principle  can  be  better  established,  than  that  a  small  excess  of 
quantity  operates  very  powerfully  on  price.  This  is  true  of  all 
commodities  ;  but  of  none  can  it  be  so  certainly  asserted  as  of  corn, 
which  forms  the  principal  article  of  the  food  of  the  people.  The 
principle,  I  believe,  has  never  been  denied  by  those  who  have  turned 
their  attention  to  this  subject.  Some,  indeed,  have  attempted  to 
estimate  the  fall  of  price  which  would  take  place,  under  the  sup- 

r,  G 


466 


ON  PROTECTION  TO  AGRICULTURE. 


position  of  the  surplus  bearing  different  proportions  to  the  average 
quantity.  Such  calculations,  however,  must  be  very  deceptions,  as 
no  general  rule  can  be  laid  down  for  the  variations  of  price  in  pro¬ 
portion  to  quantity.  It  would  be  different  in  different  countries ; 
it  must  essentially  depend  on  the  wealth  or  poverty  of  thecountrv, 
and  on  its  means  of  holding  over  the  superfluous  quantity  to  a  future 
season.  It  must  depend,  too,  on  the  opinions  formed  of  the  proba¬ 
bility  of  the  future  supply  being  adequate  or  otherwise  to  the  future 
demand.  This,  however,  is,  I  think,  certain,  that  the  aggregate 
value  of  an  abundant  crop  will  always  be  considerably  less  than  the 
aggregate  value  of  an  average  one  ;  and  that  the  aggregate  value 
of  a  very  limited  crop  will  be  considerably  greater  than  that  of  an 
average  crop.  If  100,000  loaves  were  sold  every  day  in  London, 
and  the  supply  should  all  at  once  be  reduced  to  50,000  per  day,  can 
any  one  doubt  but  that  the  price  of  each  loaf  would  be  considerably 
more  than  doubled  ?  The  rich  would  continue  to  consume  precisely 
the  same  number  of  loaves,  although  the  price  was  tripled  or  quad¬ 
rupled.  If,  on  the  other  hand,  200,000  loaves,  instead  of  100,000, 
were  daily  exposed  for  sale,  could  they  be  disposed  of  without  a  fall 
of  price,  far  exceeding  the  proportion  of  the  excess  of  quantity  ? 
Why  is  water  without  value,  but  because  of  its  abundance  ?  If 
corn  were  equally  plenty,  it  would  have  no  greater  value,  whatever 
quantity  of  labour  might  have  been  bestowed  on  its  production. 

In  proof  of  the  correctness  of  this  view,  I  may  refer  to  the  prices 
of  wheat  in  this  country  in  different  seasons  of  plenty,  when  it  will 
be  seen  that,  notwithstanding  we  were  in  a  degree  relieved  by  ex¬ 
portation,  yet,  from  the  abundance  of  crops,  corn  has  been  known 
to  fall  50  per  cent  in  three  years.  Now,  to  what  can  this  be  imputed 
but  to  excess  of  quantity?  The  document  which  follows  is  copied 
from  Mr  Tooke’s  evidence  before  the  committee  of  1821. 


s. 

d. 

Quarters. 

1728  the  price  of  wheat  was 

48 

with  an  excess  of  import  of  70,757 

1732 

23 

81 

with  an  excess  of  export  of  202,058 

1740 

45 

o| 

.  46,822 

1743 

22 

1 

.  371,429 

1750 

28 

10f 

.  947,323 

1757 

53 

4 

excess  of  import  130,017 

1761 

26 

iof 

excess  of  export  441,956 

Page  229,  Agricultural  Report 

Because  it  has  been  said,  that  abundance  may  be  prejudicial  to  the 
interests  of  the  producers,  it  has  been  objected  that  the  new  doctrine 
on  this  subject  is,  that  the  bounty  of  Providence  may  become  a 
curse  to  a  country  ;  but  this  is  essentially  changing  the  proposition. 
No  one  has  said  that  abundance  is  injurious  to  a  country,  but  that 
it  frequently  is  so  to  the  producers  of  the  abundant  commodity. 
If  what  they  raised  was  all  destined  for  their  own  consumption, 
abundance  never  could  be  hurtful  to  them ;  but  if,  in  consequence 
of  the  plenty  of  corn,  the  quantity  with  which  they  go  to  market  to 
furnish  themselves  with  other  things  is  very  much  reduced  in  value, 


ON  PROTECTION  TO  AGRICULTURE. 


4G7 


they  are  deprived  of  the  means  of  obtaining  their  usual  enjoyments  ; 
they  have,  in  fact,  an  abundance  of  a  commodity  of  little  exchange¬ 
able  value.  If  we  lived  in  one  of  Mr  Owen’s  parallelograms,  and 
enjoyed  all  our  productions  in  common,  then  no  one  could  suffer  in 
consequence  of  abundance  ;  but  as  long  as  society  is  constituted  as 
it  now  is,  abundance  will  often  be  injurious  to  producers,  and  scarcity 
beneficial  to  them. 


SECTION  V. 

On  the  Effect  produced  on  the  Price  of  Corn  by  Mr  Peel’s  Bill  for  restoring  the 
Ancient  Standard. 

Much  difference  of  opinion  prevails  on  the  effect  produced  on  the 
price  of  corn  by  Mr  Peel’s  bill  for  restoring  the  ancient  standard. 
On  this  subject  there  is  a  great  want  of  candour  in  one  of  the  dis¬ 
puting  parties  ;  and  I  believe  it  will  be  found,  that  many  of  those 
who  contended,  during  the  war,  that  our  money  was  not  depreciated 
at  all,  now  endeavour  to  show  that  the  depreciation  was  then 
enormous,  and  that  all  the  distresses  which  we  are  now  suffering 
have  arisen  from  restoring  our  currency  from  a  depreciated  state  to 
par. 

It  is  also  forgotten  that,  from  1797  to  1819,  we  had  no  standard 
whatever  by  which  to  regulate  the  quantity  or  value  of  our  money. 
Its  quantity  and  its  value  depended  entirely  on  the  Bank  of  England, 
the  Directors  of  which  establishment,  however  desirous  they  might 
have  been  to  act  with  fairness  and  justice  to  the  public,  avowed  that 
they  were  guided  in  their  issues  by  principles  which,  it  is  no  longer 
disputed,  exposed  the  country  to  the  greatest  embarrassment. 
Accordingly,  we  find  that  the  currency  varied  in  value  considerably 
during  the  period  of  twenty-two  years,  when  there  was  no  other 
rule  for  regulating  its  quantity  and  value  but  the  will  of  the  Bank. 

In  1813  and  1814  the  depreciation  of  our  currency  was  probably 
at  its  highest  point,  gold  being  then  hi.  10s.  and  hi.  8s.  per  ounce  ; 
but,  in  1819,  the  value  of  paper  was  only  5  per  cent,  below  its 
ancient  standard,  gold  being  then  4Z.  2s.  or  4/.  3s.  per  ounce.  It 
was  in  1819  that  Mr  Peel’s  bill  passed  into  a  law.  At  the  time  of 
passing  that  bill,  Parliament  had  to  deal  with  the  question  as  it 
then  presented  itself.  It  was  thought  expedient  that  an  end  should 
be  put  to  a  state  of  things  which  allowed  a  company  of  merchants 
to  regulate  the  value  of  money  as  they  might  think  proper  ;  and  the 
only  point  which  could  then  come  under  consideration  was,  whether 
the  standard  should  be  fixed  at  4/.  2s.,  which  was  the  price  of  gold, 
not  only  at  the  time  when  Parliament  was  legislating,  but  its  price 
for  nearly  the  whole  of  the  four  preceding  years;  or  the  ancient 
standard  of  31.  17s.  10^d.  should  be  restored.  Between  these  two 


468 


ON  PROTECTION  TO  AGRICULTURE. 


prices  Parliament  was  constrained  to  determine,  and,  I  think,  in 
choosing  to  go  back  to  the  ancient  standard,  it  pursued  a  wise 
course.  But  when  it  is  now  said  that  money  has  been  forcibly 
raised  in  value, — 25  per  cent.,  according  to  some  ;  50,  and  even  60 
per  cent.,  according  to  others, — they  do  not  refer  to  1819,  the 
period  at  which  that  bill  passed,  but  to  the  period  of  the  greatest 
depression ;  and  they  charge  the  whole  increase  in  the  value  of  the 
currency  to  Mr  Peel’s  bill.  Now,  it  is  to  the  system  which  allowed 
of  such  variations  in  the  value  of  money  that  Mr  Peel’s  bill  put  an 
end.  If,  indeed,  in  1819,  or  immediately  preceding  1819,  gold  had 
been  at  5 1.  10s.  an  ounce,  no  measure  could  have  been  more  inex¬ 
pedient  than  to  make  so  violent  a  change  in  all  subsisting  engage¬ 
ments,  as  would  have  been  made  by  restoring  the  ancient  standard  ; 
but  the  price  of  gold,  as  I  have  already  said,  was  then,  and  had 
been  for  four  years,  about  4/.  2s.,  never  above,  and  frequently  rather 
under,  that  price ;  and  no  measure  could  have  been  so  monstrous 
as  that  which  some  reproach  the  House  of  Commons  for  not  having 
adopted,  namely,  of  fixing  the  standard  at  51.  10s. ;  that  is,  in  other 
words,  after  the  currency  had  regained  its  value  within  5  per  cent, 
of  gold,  under  the  operation  of  the  bad  system,  again  to  have 
degraded  it  to  30  per  cent,  below  the  value  of  gold. 

It  will  be  remembered,  that  a  plan  was  by  me  submitted  to  the 
country  for  the  restoration  of  a  fixed  standard,  which  would  have 
rendered  the  employment  of  anjr  greater  quantity  of  gold  than  the 
Bank  then  possessed  wholly  unnecessary. 

That  plan  was  to  make  the  Bank  liable  to  the  payment  of  a 
certain  lanre  and  fixed  amount  of  their  notes  in  mold  bullion  at  the 
Mint  price  of  3 l.  17s.  10^d.  an  ounce,  instead  of  payment  in  gold 
coin.  If  that  plan  had  been  adopted,  not  a  particle  of  gold  would 
have  been  used  in  the  circulation, — all  our  money  must  have 
consisted  of  paper,  excepting  the  silver  coin  necessary  for  payments 
under  the  value  of  a  pound.  In  that  case  it  is  demonstrable,  that 
the  value  of  money  could  only  have  been  raised  5  per  cent,  by 
reverting  to  the  fixed  ancient  standard,  for  that  was  the  whole 
difference  between  the  value  of  gold  and  paper.  There  was  nothing 
in  the  plan  which  could  cause  a  rise  in  the  value  of  gold,  for  no 
additional  quantity  of  gold  would  have  been  required,  and  therefore 
5  per  cent,  'would  have  been  the  full  extent  of  the  rise  in  the  value 
of  money.*  Mr  Peel’s  bill  adopted  this  plan  for  four  years,  after 
which  payments  in  coin  were  to  be  established.  If  for  the  time 
specified  by  the  bill  the  Bank  Directors  had  managed  their  affairs 
with  the  skill  which  the  public  interest  required,  they  would  have 
been  satisfied  with  so  regulating  their  issues,  after  Mr  Peel’s  bill 

*  With  4l.  2s.  in  bank  notes,  any  one  could  purchase  precisely  the  same  quantity  of 
commodities  as  with  the  gold  in  3/.  17s.  Khfd.  ;  the  object  of  the  plan  was  to  make 
3/.  17s.  10£d.  in  bank  notes,  as  valuable  as  3l.  17s.  10^-d.  in  gold.  To  effect  this  object, 
could  it  have  been  necessary,  could  it,  indeed,  have  been  possible,  to  lower  the  value 
of  goods  more  than  5  per  cent.,  if  the  value  of  gold  had  not  been  raised? 


ON  PROTECTION  TO  AGRICULTURE. 


469 


passed,  that  the  exchange  should  continue  at  par,  and  consequently 
no  importation  of’ gold  could  have  taken  place;  but  the  Bank,  who 
always  expressed  a  decided  aversion  to  the  plan  of  bullion  payments, 
immediately  commenced  preparations  for  specie  payments.  Their 
issues  were  so  regulated,  that  the  exchange  became  extremely 
favourable  to  this  country  ;  gold  flowed  into  it  in  a  continued  stream, 
and  all  that  came  the  Bank  eagerly  purchased  at  3/.  17s.  10^d.  per 
ounce.  Such  a  demand  for  gold  could  not  fail  to  elevate  its  value 
compared  with  the  value  of  all  commodities.  Not  only,  then,  bad 
we  to  elevate  the  value  of  our  currency  5  per  cent.,  the  amount  of 
the  difference  between  the  value  of  paper  and  of  gold  before  these 
operations  commenced,  but  we  had  still  farther  to  elevate  it  to  the 
new  value  to  which  gold  itself  was  raised  by  the  injudicious 
purchases  which  the  Bank  made  of  that  metal.  It  cannot,  I  think, 
be  doubted,  that  if  bullion  payments  bad  been  fairly  tried  for  three 
out  of  the  four  years  between  1819  and  1823,  and  had  been  found 
fully  to  answer  all  the  objects  of  a  currency  regulated  by  gold  at  a 
fixed  value,  the  same  system  would  have  been  continued,  and  we 
should  have  escaped  the  further  pressure  which  the  country  has 
undoubtedly  undergone  from  the  effects  of  the  great  demand  for 
gold  which  specie  payments  have  entailed  upon  us. 

The  Bank  Directors  urge  in  defence  of  the  measures  which  they 
have  pursued  the  complaints  which  were  made  against  them  on 
account  of  the  frequent  executions  for  forgery,  which  rendered  it 
indispensable  that  they  should  withdraw  the  one-pound  notes  from 
circulation  for  the  purpose  of  replacing  them  with  coin.  If  they 
could  not  substitute  a  note  better  calculated  to  prevent  forgery 
than  the  one  which  they  have  hitherto  used, this  plea  is  a  valid  one, 
for  the  sacrifice  of  a  small  pecuniary  interest  could  not  be  thought 
too  great  if  it  took  away  the  temptation  to  the  crime  of  forger}',  for 
which  so  many  unfortunate  persons  were  annually  executed ;  but 
this  excuse  comes  with  a  bad  grace  from  the  Bank  of  England, 
who  did  not  discover  the  importance  of  preventing  forgery  by  the 
issue  of  coin  till  1821,  after  they  had  made  such  large  purchases  of 
gold  that  they  •were  under  the  necessity  of  applying  to  Parliament 
for  a  bill  to  enable  them  to  issue  coin  in  payment  of  their  notes, 
which,  by  Mr  Peel’s  bill,  they  were  prevented  from  doing  till  1823. 
How  comes  it  that  they  did  not  make  this  discovery  in  1819,  when 
the  committees  of  the  Lords  and  Commons  were  sitting  on  bank 
payments  ?  Instead  of  being  eager  at  that  period  to  commence 
specie  payments,  they  remonstrated,  in  a  manner  which  many 
thought  unbecoming,  against  any  plan  of  metallic  payments  which 
did  not  leave  the  uncontrolled  power  of  increasing  or  diminishing 
the  amount  of  the  currency  in  their  hands.  It  surely  is  not 
forgotten,  that,  on  an  application  by  the  Lords’  Committee  to  the 
Bank,  dated  the  24th  March  1819,  asking  if  “the  Bank  had  any 
and  what  objections  to  urge  against  the  passing  a  law  to  require  it 
should  pay  its  notes  in  bullion  on  demand,  but  in  sums  not  less  in 


470 


ON  PROTECTION  TO  AGRICULTURE. 


amount  than  100/.,  200/.,  or  300/.,  at  3 /.  17s.  lO^cl.,  and  to  buy 
gold  bullion  at  3/.  17s.  Gd.  by  an  issue  of  its  notes,  the  said  plan  to 
commence  after  a  period  to  be  fixed  for  that  purpose  the 
Directors  answered,  “  the  Bank  has  taken  into  consideration  the 
question  sent  by  the  Committee  of  the  House  of  Lords,  under  date 
of  the  24th  March,  and  is  not  aware  of  any  difficulty  in  exchanging, 
for  a  fixed  amount  of  bank  notes,  gold  bullion  of  a  certain  weight, 
provided  it  be  melted,  assayed,  and  stamped  by  his  Majesty’s  Mint. 

11  The  attainment  of  bullion  by  the  Bank  at  3/. 17s.  Gd.  is,  in  the 
estimation  of  the  Court,  so  uncertain,  that  the  Directors,  in  duty 
to  their  proprietors,  do  not  feel  themselves  competent  to  engage  to 
issue  bullion  at  the  price  of  3/.  17s.  10^d. ;  but  the  Court  beg  leave 
to  suggest,  as  an  alternative,  the  expediency  of  its  furnishing  bullion 
of  a  fixed  weight  to  the  extent  stated  at  the  market  price  as  taken 
on  the  preceding  foreign  post-day,  in  exchange  for  its  notes,  pro¬ 
vided  a  reasonable  time  be  allowed  for  the  Bank  to  prepare  itself  to 
try  the  effect,  of  such  a  measure.” 

If  this  proposal  had  been  acceded  to,  the  Bank  would  itself  have 
determined  the  price  at  which  it  should  have  sold  gold  from  time 
to  time  to  the  public,  because  by  extending  or  curtailing  their 
issues,  they  had  the  power  to  make  the  price  of  gold  just  what  they 
pleased,  4/.  or  10/.  an  ounce,  and  at  that  price  to  which  they  might 
choose  to  elevate  it,  they  graciously  proposed  to  sell  it,  “  provided 
a  reasonable  time  be  allowed  to  prepare  itself  to  try  the  effect  of 
such  a  measure.” 

After  this  proposal,  after  the  representation  made  to  the 
Chancellor  of  the  Exchequer  by  the  Directors  of  the  Bank  of 
England  on  the  20th  May  1819,*'  it  will  not  be  said  that  the 
question  of  forgery  appeared  so  urgent  to  the  Directors  that  they 
were  eager  to  substitute  coin  for  their  small  notes  in  1819,  however 
important  the  question  became  in  their  view  in  1820. 

It  is  a  question  exceedingly  difficult  to  determine  what  the  effect 
has  been  on  the  value  of  gold,  and  consequently  on  the  value  of 
money  produced  by  the  purchases  of  bullion  made  by  the  Bank. 
When  two  commodities  vary,  it  is  impossible  to  be  certain  whether 
one  has  risen,  or  the  other  fallen.  There  are  no  means  of  even 
approximating  to  the  knowledge  of  this  fact,  but  by  a  careful  com¬ 
parison  of  the  value  of  the  two  commodities,  during  the  period  of 
their  variation,  with  the  value  of  many  other  commodities. 

Even  this  comparison  does  not  afford  a  certain  test,  because  one- 
half  of  the  commodities  to  which  they  are  compared,  may  have 
varied  in  one  direction,  while  the  other  half  may  have  varied  in 
another :  by  which  half  shall  the  variation  of  gold  be  tried  ?  If  by 
one  it  appears  to  have  risen,  if  by  the  other  to  have  fallen.  From 
observations,  however,  on  the  price  of  silver,  and  of  various  other 
commodities,  making  due  allowance  for  the  particular  causes  which 


See  Appendix  A. 


OX  PROTECTION  TO  AGRICULTURE. 


471 


may  have  specially  operated  on  the  value  of  each,  Mr  Tooke,  one 
of  the  most  intelligent  witnesses  examined  by  the  Agricultural 
Committee,  came  to  the  conclusion  that  the  eager  demand  for  gold 
made  by  the  Bank  in  order  to  substitute  coin  for  their  small  notes, 
had  raised  the  value  of  currency  about  5  per  cent.  In  this  con¬ 
clusion,  I  quite  concur  with  Mr  Tooke.  If  it  be  well  founded,  the 
whole  increased  value  of  our  currency  since  the  passing  of  Mr  Peel’s 
bill  in  1819,  may  be  estimated  at  about  10  per  cent.  To  that 
amount,  taxation  has  been  increased  by  the  measure  for  restoring 
specie  payment;  to  that  amount  the  fall  of  grain,  and  with  it  of  all 
other  commodities,  has  taken  place  as  far  as  this  cause  alone  has 
operated  on  them  ;  but  all  above  that  amount,  all  the  further 
depression  which  the  price  of  corn  has  sustained,  must  be  accounted 
for  by  the  supply  having  exceeded  the  demand ;  a  depression,  which 
would  have  equally  occurred,  if  no  alteration  Avhatever  had  been 
made  in  the  value  of  the  currency. 

It  is,  indeed,  alleged  by  many  of  the  landed  interest,  that  to  one 
cause  alone,  all  the  distress  in  agriculture  is  to  be  ascribed.  They 
go  so  far  as  to  say,  that  there  is  now  no  surplus  produce  on  the 
land,  but  what  is  paid  to  the  Government  for  taxes  ;  that  there  is 
nothing  whatever  left  for  rent  or  profit;  that  whatever  rent  is  paid, 
is  derived  from  the  capital  of  the  farmer,  and  all  these  effects  they 
charge  on  the  alteration  in  the  value  of  the  currency. 

It  is  evident  that  those  who  advance  this  most  extravagant 
proposition,  do  not  know  how  the  alteration  in  the  value  of  the 
currency  affects  the  different  interests  of  a  country.  If  it  injures 
the  debtor,  it  in  the  same  degree  benefits  the  creditor ;  if  its 
pressure  is  felt  by  the  tenant,  it  must  be  advantageous  to  the  land¬ 
lord,  and  to  the  receivers  of  taxes.  They,  then,  who  maintain  this 
doctrine,  must  be  prepared  to  contend  that  all  that  fund,  which 
formerly  constituted  the  rent  of  the  landlord,  and  the  profits  of  the 
farmer,  are,  by  the  alteration  in  the  value  of  money,  transferred  to 
the  State,  and  are  now  paid  to  the  receivers  of  taxes,  and,  among 
them,  the  stock-holders.  That  the  situation  of  the  stock-holder  is 
improved,  by  his  dividends  being  paid  in  a  currency  increased  in 
value,  there  can  be  no  doubt ;  but  what  evidence  is  there  to  show 
that  his  situation  is  so  much  improved,  that  he  has  now  at  his 
disposal,  in  addition  to  his  former  means  of  enjoyment,  all  those 
which  wTere  before  at  the  disposal  of  the  whole  of  the  tenantry,  and 
of  the  landlords  of  the  country  ?  So  wild  an  assertion  cannot  be 
for  a  moment  entertained  ;  we  have  not  heard  of  splendid  equipages 
and  superb  mansions  having  been  built  by  the  stock-holders  since, 
and  in  consequence  of,  the  bill  of  1819.  Besides,  if  this  were  true, 
how  comes  it  that  the  profits  of  the  merchant  and  manufacturer 
have  escaped  the  fund-holder,  this  devouring  monster,  as  he  has 
been  called?  Are  not  their  profits  governed  by  the  same  principle, 
and  by  the  same  law,  as  the  profits  of  the  farmer?  IIowt  have  they 
contrived  to  exempt  themselves  from  this  desolating  storm?  The 


472 


ON  PROTECTION  TO  AGRICULTURE. 


answer  is  plain,  there  is  no  truth  in  the  allegation.  Agriculture 
has  been  depressed  by  causes  of  which  the  currency  forms  only  a 
little  part.  The  peculiar  hardships  which  the  landed  interest  are 
suffering,  are  of  a  temporary  character,  and  will  continue  only  while 
the  supply  of  produce  exceeds  the  demand.  A  remunerative  price 
is  impossible  while  this  cause  of  low  value  continues ;  but  the 
situation  of  things  which  we  now  witness  cannot  have  any  per¬ 
manence. 

Is  it  not  quite  certain,  that  if  the  pressure  on  the  farmers,  from 
the  alteration  in  the  value  of  currency,  and  the  increased  taxation 
consequent  upon  it,  has  been  so  great  as  to  take  from  them  all  the 
profits  of  their  capital,  it  must  also  have  taken  away  the  profits 
of  all  other  persons  employing  capital?  for  it  is  quite  impossible 
that  one  set  of  capitalists  should  be  permanently  without  any  profit 
at  all,  whilst  others  are  making  reasonable  profits. 

On  the  part  of  the  landlords  it  may  be  said,  that  they  are  encum¬ 
bered  with  fixed  charges  on  their  estates,  such  as  dowers,  provision 
for  daughters,  and  younger  children,  mortgages,  &c.  It  cannot  be 
denied  that  an  alteration  in  the  value  of  currency  must  greatly 
affect  such  engagements,  and  must  be  very  burdensome  to  landlords; 
but  they  should  remember  that  they  or  their  fathers  benefited  by 
the  depreciation  of  the  value  of  the  currency.  All  their  fixed  en¬ 
gagements,  their  taxes  included,  were  for  many  years  paid  in  the 
depreciated  medium.  If  they  suffer  injustice  now,  they  profited  by 
injustice  at  a  former  period  ;  and  if  the  account  were  fairly  made 
up,  it  would,  I  believe,  be  found  that,  as  far  as  alteration  in  the 
value  of  currency  is  concerned,  they  have  little  just  cause  for 
complaint. 

But,  on  the  score  of  money  engagements,  which  are  now  affected 
by  the  increased  value  of  currency,  have  the  commercial  interest  no 
cause  for  complaint  ?  Are  they  not  debtors  in  as  large  an  amount 
as  the  landed  interest?  Howr  many  persons  have  retired  from 
business,  whose  capitals  are,  directly  or  indirectly,  still  employed 
by  their  successors?  What  vast  sums  are  employed  by  bankers 
and  others  in  discounting  bills  ?  For  the  whole  of  this  value  there 
must  be  debtors,  and  the  increased  value  of  money  could  not  have 
failed  very  much  to  aggravate  the  pressure  of  their  debts. 

I  mention  these  circumstances  to  show  that  if  the  real  efficient 
cause  of  the  distress  of  the  landed  gentlemen  was  the  increased 
value  of  money,  it  ought  to  have  produced  similar  distress  in  other 
quarters  ; — it  has  not  done  so,  and  therefore  I  have  a  right  to  infer, 
that  the  cause  of  the  distress  has  been  mistaken. 

The  profits  of  the  farmer  must  bear  some  uniform  proportion  to 
the  profits  of  the  other  classes  of  capitalists ;  they  are  subject  to 
temporary  fluctuations,  perhaps,  in  a  greater  degree  than  the  profits 
of  others  ;  but  the  circumstances  of  which  they  complain,  though 
severe  and  aggravated  at  the  present  time  by  other  causes,  yet  are 
by  no  means  new  or  uncommon. 


ON  PROTECTION  TO  AGRICULTURE. 


473 


Mr  Tooke,  in  his  evidence  before  the  Agricultural  Committee,  in 
pages  230  and  231,  has  furnished  us  with  extracts  from  publications 
in  the  last  century,  in  which  the  ruin  of  the  landed  interest  was 
foretold  in  terms  not  very  unlike  those  used  in  the  present  day. 
Those  difficulties  have  passed,  and  the  present  ones  will,  with  a 
little  good  legislation,  soon  only  be  matter  of  history. 

At  a  late  Court  of  proprietors  of  Bank  Stock,  the  Directors  said 
that,  so  far  from  having  reduced  the  amount  of  the  circulation  since 
1819,  they  had  considerably  increased  it,  and  that  it  was  this  year 
actually  more  by  3,000,000/.  than  the  amount  of  the  circulation  at 
the  same  period  last  year  or  the  year  preceding.  If  the  Directors 
were  quite  correct  in  this  statement,  it  is  no  answer  to  the  charge 
of  their  having  kept  the  circulation  too  low,  and  thereby  caused  the 
great  influx  of  gold.  My  question  to  them  is,  “  Was  your  circula¬ 
tion  so  high  as  to  keep  the  exchange  at  par  ?”  To  this  they  must 
answer  in  the  negative  ;  and  therefore  I  say,  that  if  in  consequence 
of  the  importation  of  gold,  that  metal  is  enhanced  in  value,  and  the 
pressure  on  the  country  is  thereby  increased,  it  is  because  the  Bank 
did  not  issue  a  sufficient  quantity  of  notes  to  keep  the  exchange  at 
par.  This  charge  is  of  the  same  force  whether  the  amount  of 
bank  notes  has,  in  point  of  fact,  been  stationary,  increasing,  or 
diminishing. 

But  I  dispute  the  fact  of  the  circulation  having  been  even  half  a 
million  higher  in  amount  in  1822  than  in  1821  and  1820.  The  mode 
of  proving  the  proposition  adopted  by  the  Bank  is  not  satisfactory  ; 
they  say,  in  1821  we  had  23,800,000/.  in  circulation,  and  now  the 
notes  in  circulation,  with  the  sovereigns  tve  have  since  issued, 
amount  to  3,000,000/.  more.  But  as  sovereigns  are  circulated  in 
Ireland,  and  in  other  districts  of  the  United  Kingdom,  how  can  they 
affirm,  that  in  the  same  channel  in  which  23,800,000/.  bank  notes 
circulated  in  1821,  26,800,000  bank  notes  and  sovereigns  together, 
are  now  in  circulation  ?  I  believe  the  contrary  to  be  the  fact,  for 
I  find  that  the  amount  of  notes  of  five  pounds  and  above,  which 
have  been  in  circulation  for  several  years  past,  in  the  month  of 
February,  is  as  follows  : — 


Years. 

£ 

1815  . 

.  16,394,359 

1816  . 

.  15,307,228 

1817  . 

.  17,538,656 

1818  . 

.  19,077,951 

1819  . 

.  16,148,098- 

1820  . 

.  15,393,770 

1821  . 

.  15,766,270 

1822  . 

.  15,784,770 

And  as  the  notes  of  five  pounds  and  upwards  have  not  increased 
400, oOOZ.  since  1820,  I  find  it  impossible  to  believe  that  the  circu¬ 
lation  of  a  smaller  denomination  can  have  increased  in  any  much 
larger  proportion. 


474 


OX  PROTECTION  TO  AGRICULTURE. 


Before  I  conclude  this  section  I  must  observe,  that  the  complaints 
made  against  the  Bank  for  refusing  to  lend  money  on  discount  at 
4  per  cent,  are  without  any  good  foundation.  The  reason  for 
such  complaints  is,  that  by  lending  at  4  per  cent,  they  would 
lower  the  rate  of  interest  generally,  and  the  landed  interest  would 
be  benefited  by  being  able  to  raise  money  on  mortgage  on  cheaper 
terms  than  they  now  pay  for  it.  I  believe,  however,  that  no  amount 
of  loans  which  the  Bank  might  make,  and  no  degree  of  lowness  of 
interest  at  which  they  might  choose  to  lend,  would  alter  the  per¬ 
manent  rate  of  interest  in  the  market.  Interest  is  regulated  chiefly 
by  the  profits  that  may  be  made  by  the  use  of  capital;  it  cannot  be 
controlled  by  any  bank,  nor  by  any  assemblage  of  banks.  During 
the  last  war  the  market  rate  of  interest  for  money  was,  for  years 
together,  fluctuating  between  7  and  10  per  cent. ;  yet  the  Bank 
never  lent  at  a  rate  above  5  per  cent.  In  Ireland,  the  Bank,  by 
its  charter,  is  obliged  to  lend  at  a  rate  of  interest  not  exceeding 
0  per  cent.,  yet  all  other  persons  lend  at  6  per  cent. 

A  Bank  has  fulfilled  all  its  useful  functions  when  it  has  substi¬ 
tuted  paper  in  the  circulation  for  gold  ;  when  it  has  enabled  us  to 
carry  on  our  commerce  with  a  cheap  currency,  and  to  employ  the 
valuable  one  which  it  supplants  productively  :  provided  it  fulfils  this 
object,  it  is  of  little  importance  at  what  rate  of  interest  it  lends  its 
money. 

One  argument  used  by  a  very  enlightened  member  of  Parliament, 
during  a  late  discussion  on  the  rate  of  interest  charged  by  the  Bank, 
was  rather  a  singular  one  :  he  said  that  the  Bank  of  France,  and 
other  banks  on  the  Continent,  lent  at  a  low  rate,  and  therefore  the 
Bank  of  England  should  do  so.  I  can  see  no  connexion  between 
his  premises  and  conclusion.  The  Bank  of  France  ought  to  be 
governed  by  the  market  rate  of  interest  and  the  rate  of  profits  in 
France  ;  the  Bank  of  England  by  the  market  rate  of  interest  and 
the  rate  of  profit  in  England.  One  may  be  very  different  from  the 
other.  From  the  whole  of  his  argument,  I  should  infer  that  he 
considered  a  low  rate  of  interest,  in  itself,  beneficial  to  a  country. 
The  very  contrary,  I  imagine,  is  the  truth.  A  low  rate  of  interest 
is  a  symptom  of  a  great  accumulation  of  capital ;  but  it  is  also 
a  symptom  of  a  low  rate  of  profits,  and  of  an  advancement  to  a 
stationary  state ;  at  which  the  wealth  and  resources  of  a  country 
will  not  admit  of  increase.  As  all  savings  are  made  from  profits, 
as  a  country  is  most  happy  when  it  is  in  a  rapidly  progressive  state, 
profits  and  interest  cannot  be  too  high.  It  would  be  a  poor  con¬ 
solation,  indeed,  to  a  country  for  low  profits  and  low  interest,  that 
landlords  were  enabled  to  raise  money  on  mortgage  with  diminished 
sacrifices.  Nothing  contributes  so  much  to  the  prosperity  and 
happiness  of  a  country  as  high  profits. 

This  complaint  against  the  Bank,  which  comes,  I  think,  with  an 
ill  grace  from  a  member  of  Parliament,  as  representing  the  public 
interest,  might  be  consistently  urged  by  a  Bank  proprietor  at  a 


ON  PROTECTION  TO  AGRICULTURE. 


475 


general  meeting  of  their  body,  for  it  is  difficult  to  account  on  what 
principle  of  advantage  to  the  concern  which  they  manage  the 
Directors  can  think  it  right  to  lend  their  proprietors’  money  at  3 
per  cent,  to  Government*  when  they  could  obtain  4  per  cent,  from 
other  borrowers ;  but  with  this  the  public  have  no  concern,  and 
they  and  their  proprietors  should  be  left  to  settle  this  matter  as 
they  please. 


SECTION  YI. 

On  the  Effects  of  a  Low  Value  of  Corn  on  the  Rate  of  Profits. 

When  I  use  the  term — a  low  value  of  corn,  I  wish  to  be  clearly 
understood.  I  consider  the  value  of  corn  to  be  low,  when  a  large 
quantity  is  the  result,  of  a  moderate  quantity  of  labour.  In  pro¬ 
portion,  as  for  a  given  quantity  of  labour  a  smaller  quantity  of  corn 
is  obtained,  com  will  rise  in  value.  In  the  progress  of  society  there 
are  two  opposite  causes  operating  on  the  value  of  corn  ;  one,  the 
increase  of  population,  and  the  necessity  of  cultivating,  at  an 
increased  charge,  land  of  an  inferior  quality,  which  always  occasions 
a  rise  in  the  value  of  corn  ;  the  other,  improvements  in  agriculture, 
or  the  discovery  of  new  and  abundant  foreign  markets,  which  always 
tend  to  lower  the  value.  Sometimes  one  predominates,  sometimes 
the  other,  and  the  value  of  corn  rises  or  falls  accordingly. 

In  speaking  of  the  value  of  corn,  I  mean  something  ra  ther  different 
from  its  price — when  its  value  rises,  its  price  generally  rises,  and 
would  always  do  so,  if  money,  in  which  price  is  uniformly  estimated, 
were  invariable  in  value.  But  corn  may  not  vary  as  compared 
with  all  other  things— it  may  not  be  the  result  of  either  more  or 
less  labour,  and  yet  it  may  rise  or  fall  in  price,  because  money  may 
become  more  plentiful  and  cheap,  or  more  scarce  and  dear.  Nothing 
is  of  so  little  importance  to  the  community  collectively,  as  an  altera¬ 
tion  in  the  price  of  corn,  caused  by  an  alteration  in  the  value  of 
money  merely  ;  nothing  of  greater  importance,  as  far  as  its  profits 
and  its  wealth  are  concerned,  than  a  rise  or  fall  in  the  price  of  corn, 
when  money  continues  of  a  fixed  and  invariable  value.  We  will 
suppose  money  to  continue  at  a  fixed  and  invariable  value,  that  we 
may  ascertain  the  effects  of  a  rise  or  fall  in  the  value  of  corn  ;  which, 
on  this  supposition,  will  be  synonymous  with  a  rise  or  fall  in  its  price. 

Corn  being  one  of  the  chief  articles  on  which  the  wages  of 
labour  are  expended,  its  value  to  a  great  degree,  regulates  wages. 
Labour  itself  is  subject  to  a  fluctuation  of  value  in  the  same 


*  The  Bank  are  now  in  advance  many  millions  to  the  Government  on  exchequer 
bills  at  3  per  cent.,  besides  the  fixed  advance  of  their  capital,  also  at  3  per  cent., 
which  latter  they  are,  by  their  charter,  obliged  to  lend  at  that  rate  of  interest. 


47H 


OX  PROTECTION  TO  AGRICULTURE. 


manner  as  every  thing  which  is  the  subject  of  demand  and  supply, 
hut  it  is  also  particularly  affected  by  the  price  of  the  necessaries  of 
the  labourer  ;  and  corn,  as  I  have  already  observed,  is  amongst  the 
principal  of  those  necessaries.  In  a  former  section  I  have  endea¬ 
voured  to  show,  that  a  general  rise  of  wages  will  not  raise  the 
prices  of  commodities  on  which  labour  is  expended.  If  wages  rose 
in  one  trade,  the  commodity  produced  in  that  trade  must  rise,  to 
place  the  producer  of  it  on  a  par  with  all  other  trades  ;  but  when 
wages  affect  all  producers  alike,  a  rise  in  the  value  of  all  their  com¬ 
modities  must,  as  I  have  on  a  former  occasion  remarked,  be  a 
matter  of  great  indifference  to  them,  as  whether  they  were  all  at  a 
high  price  or  all  at  a  low  price,  their  relative  values  would  be  the 
same,  and  it  is  the  alteration  of  their  relative  values  only  which 
gives  to  the  holders  of  them  a  greater  or  less  command  of  goods. 
Every  man  exchanges  his  goods,  finally,  for  other  goods,  or  for 
labour,  and  he  cares  little  whether  he  sells  his  own  goods  at  a  high 
price,  if  he  is  obliged  to  give  a  high  price  for  the  goods  he  purchases, 
or  sells  them  at  a  low  price,  if,  at  the  same  time,  he  can  also  pro¬ 
cure  the  goods  he  wants  at  a  low  price.  In  either  case  his  enjov- 
ments  are  the  same. 

With  a  permanently  high  price  of  corn,  caused  by  increased  labour 
on  the  land,  wages  would  be  high  ;  and,  as  commodities  would  not 
rise  on  account  of  the  rise  of  wages,  profits  would  necessarily  fall. 
If  goods  worth  1000/.  require  at  one  time  labour  which  cost  800/., 
and  at  another  the  price  of  the  same  quantity  of  labour  is  raised  to 
900/.,  profits  will  fall  from  200/.  to  100/.  Profits  would  not  fall  in 
one  trade  only,  but  in  all.  High  wages,  when  general,  equally 
affect  the  profits  of  the  farmer,  the  manufacturer,  and  the  mer¬ 
chant.  There  is  no  other  way  of  keeping  profits  up  but  by  keeping 
wages  down.  In  this  view  of  the  law  of  profits,  it  will  at  once  be 
seen  how  important  it  is  that  so  essential  a  necessary  as  corn, 
which  so  powerfully  affects  wages,  should  be  at  a  low  price ;  and 
how  injurious  it  must  be  to  the  community  generally,  that,  by 
prohibitions  against  importation,  wTe  should  be  driven  to  the  culti¬ 
vation  of  our  poorer  lands  to  feed  our  augmenting  population. 

Besides  the  impolicy  of  devoting  a  greater  portion  of  our  labour 
to  the  production  of  food  than  would  otherwise  be  necessary, 
thereby  diminishing  the  sum  of  our  enjoyments  and  the  power  of 
saving,  by  lowering  profits,  we  offer  an  irresistible  temptation  to 
capitalists  to  quit  this  country,  that  they  may  take  their  capitals 
to  places  where  wages  are  low  and  profits  high.  If  landlords  could 
be  sure  of  the  prices  of  corn  remaining  steadily  high,  which  happily 
they  cannot  be,  they  would  have  an  interest  opposed  to  every  other 
class  in  the  community  ;  for  a  high  price,  proceeding  from  diffi¬ 
culty  of  production,  is  the  main  cause  of  the  rise  of  rent :  not  that 
the  rise  of  rent,  the  advantage  gained  by  the  landlord,  is  an  equiva¬ 
lent  for  the  disadvantage  imposed  on  the  other  classes  of  the 
community,  in  being  prevented  from  importing  cheap  corn  we 


ON  PROTECTION  TO  AGRICULTURE. 


477 

have  not  that  consolation  :  for  to  give  a  moderate  advantage  to  one 
class,  a  most  oppressive  burthen  must  be  laid  on  all  the  other 
classes. 

This  advantage  to  the  landlords  themselves  would  be  more 
apparent  than  real ;  for,  to  complete  the  advantage,  they  should  be 
able  to  calculate  on  steady  as  well  as  high  prices.  Nothing  is  so 
injurious  to  tenants  as  constantly  fluctuating  prices,  and  under  a 
system  of  protection  to  the  landlord,  and  prohibition  against  the 
importation  of  foreign  corn,  tenants  must  be  exposed  to  the  most 
injurious  fluctuations  of  profits,  as  I  shall  attempt  to  show  in  the 
next  section.  When  the  profits  of  a  farmer  are  high,  he  is  induced 
to  live  more  profusely,  and  to  make  his  arrangements  as  if’  his  good 
fortune  were  always  to  continue  ;  but  a  reverse  is  sure  to  come  :  he 
has  then  to  suffer  from  his  former  improvidence,  and  he  finds  him¬ 
self  entangled  in  expenses,  which  render  him  utterly  unable  to  fulfil 
his  engagements  with  his  landlord. 

o  o 

The  landlord’s  rent  is,  indeed,  nominally  high,  but  he  is  frequently 
in  the  situation  of  not  being  able  to  realize  it;  and  little  doubt  can 
exist,  that  a  more  moderate  and  steady  price  of  corn,  with  regular 
profits  to  the  tenant,  would  afford  to  the  landlord  the  best  security 
for  his  happiness  and  comfort,  if  not  for  the  receipt  of  the  largest 
amount  of  rent. 

It  appears,  then,  that  a  high  but  steady  price  of  corn  is  most 
advantageous  to  the  landlord ;  but,  as  steadiness  in  a  country 
situated  as  ours,  is  nearly  incompatible  with  a  price  high  in  this 
country,  as  compared  with  other  countries,  a  more  moderate  price 
is  really  for  his  interest.  Nothing  can  be  more  clearly  established, 
than  that  low  prices  of  corn  are  for  the  interest  of  the  farmer,  and 
of  every  other  class  of  society  ;  high  prices  are  incompatible  with 
low  wages,  and  high  wages  cannot  exist  with  high  profits. 

I  must  here  notice  an  error,  which  has  been  supported  by  one  of 
those,  whose  talents  give  them  great  authority  in  the  place  where 
the  opinion  was  delivered ;  it  is,  that  though  the  manufacturer  has 
it  in  his  power  to  raise  the  price  of  his  commodity  when  it  is  taxed, 
and  even,  on  some  occasions,  to  profit  by  its  being  taxed,  yet  the 
farmer  cannot  so  indemnify  himself,  and  that,  consequently,  at  the 
end  of  his  lease,  if  not  before,  the  whole  weight  of  the  tax  must  fall 
on  his  landlord.  This  is  an  error  of  long  standing,  for  it  is  supported 
by  no  less  an  authority  than  Adam  Smith.  The  subject  of  rent, 
and  the  laws  by  which  its  fall  and  rise  are  regulated,  have  been 
explained  since  the  time  of  Adam  Smith ;  and  all  those  men  who 
are  acquainted  with  this  explanation,  are  incapable  of  falling  into 
the  error.  I  am  not  now  going  into  the  question  of  rent ;  that 
subject  has  been  well  elucidated  by  several  able  writers.  But  I 
would  ask  those  who  still  adhere  to  Adam  Smith’s  doctrine,  on 
whom  the  tax  on  land  could  fall  when  it  was  equal  to  3s.  per  acre, 
if  the  land  cultivated  were  of  the  description  mentioned  bv  Mr 
Harvey  in  his  evidence,  and  to  which  1  have  already  referred 


478 


OK  PROTECTION  TO  AGRICULTURE. 


land  for  which  Is.  Gd.  only  is  paid  as  rent?  The  farmer  must 
either  get  lower  profits  than  other  farmers  who  pay  higher  rents,  or 
he  must  be  able  to  transfer  this  charge  to  the  consumer.  But  why 
should  lie  remain  in  an  occupation  in  which  his  profits  are  below 
the  profits  of  all  other  capitalists  in  the  community  ?  He  might 
require  time  to  remove  himself  from  an  unprofitable  employment; 
but  he  would  not  perseveringly  continue  in  it,  more  than  any  other 
person  similarly  circumstanced  in  other  occupations. 

I  have  taken  the  instance  mentioned  by  Mr  Harvey,  because,  as 
he  is  a  practical  man,  weight  will  be  given  to  his  information  ;  but 
I  am  myself  fully  persuaded  that  a  large  quantity  of  corn  is  raised 
in  every  country,  for  the  privilege  of  raising  which,  no  rent  whatever 
is  paid.  Every  farmer  is  at  liberty  to  employ  an  additional  portion 
of  capital  on  his  land  after  all  that  which  is  necessary  for  affording 
his  rent,  has  already  been  employed.  The  corn  raised  with  this 
capital,  can  only  afford  the  usual  profits  if  no  rent  is  paid  out  of  it. 
Impose  a  tax  on  producing  it,  without  admitting  a  compensation 
by  a  rise  of  price,  and  that  moment  you  offer  an  inducement  to  the 
withdrawing  of  that  portion  of  capital  from  the  land,  thereby 
diminishing  the  supply.  No  point  is  more  satisfactorily  established 
in  my  opinion,  than  that  every  tax  imposed  on  the  production  of 
raw  produce  falls  ultimately  on  the  consumer,  in  the  same  way  as 
taxes  on  the  production  of  manufactured  commodities  fall  on  the 
consumers  of  those  articles. 


SECTION  VII. 

Under  a  System  of  Protecting  Duties  established  with  a  view  to  give  the  Monopoly  ol 
the  Home  Market  to  the  Home  Grower  of  Corn,  Prices  cannot  be  otherwise  than 
fl  uctuating. 

Protecting  duties  on  the  importation  of  corn  must  always  be 
imposed  on  the  supposition  that  corn  is  cheaper  in  foreign  countries, 
by  the  amount  of  such  duties  ;  and  that  if  they  were  not  imposed, 
foreign  corn  would  be.  imported.  If  foreign  corn  were  not  cheaper, 
no  protecting  duty  would  be  necessary,  for,  under  a  system  of  free 
trade,  it  would  not  be  imported.  To  the  amount,  then,  of  the  pro¬ 
tecting  duty,  the  ordinary  and  average  price  of  corn  must  be 
supposed  to  be  higher  in  the  country  imposing  it  than  in  others, 
and  when  abundant  harvests  occur,  before  any  corn  can  be  exported 
from  a  country  so  circumstanced,  corn  must  fall  from  its  usual  and 
average  price,  not  only  by  the  amount  of  the  duty,  but  also  by  the 
further  amount  of  the  expenses  of  exporting  the  corn.  Under  a 
system  of  free  trade,  the  price  of  corn  in  two  countries  could  not 
materially  differ  more  than  the  expenses  attending  the  exportation 
of  it  from  one  country  to  the  other  :  and  therefore,  if  an  abundant 
harvest  occurred  in  either,  and  was  not  common  to  both,  after  an 


ON  PROTECTION  TO  AGRICULTURE. 


473 


inconsiderable  fall  of  price,  a  vent  for  the  superfluous  produce  would 
be  immediately  found  in  exportation.  But  under  a  system  of  pro¬ 
tecting  duties,  or  of  prohibitory  laws,  the  fall  in  the  price  of  corn 
fron  an  abundant  crop,  or  from  a  succession  of  abundant  crops, 
mist  be  ruinous  to  the  grower,  before  he  can  relieve  himself  by 
ejportation.  If  we  coidd  listen  to  Mr  Webb  Hall’s  recommenda¬ 
tion  of  a  fixed  duty  of  40s.  on  the  importation  of  foreign  corn  ;  and 
if  he  be  right  in  supposing  that  40s.  is  the  difference  of  the  natural 
price  of  corn  in  England  and  in  the  corn  countries,  on  every  occa¬ 
sion  of  abundant  harvests,  corn  must  actually  fall  40s.,  before  it  can 
be  the  interest  of  any  party  to  export  it  to  the  Continent ;  a  fall  so 
great  that,  if  the  farmers  were  subjected  to  it,  they  would  be  totally 
unable  to  pay  their  rents  in  abundant  seasons,  without  a  great 
sacrifice  of  capital. 

The  same  observation  is  applicable  to  the  present  corn  law, 
which  prohibits  importation  till  the  price  rises  to  80s.  The  effect 
of  this  law  is  to  make  the  price  of  corn  in  this  country  habitually 
and  considerably  above  the  price  in  other  countries  ;  and,  therefore, 
on  occasion  of  abundant  crops,  it.  must  fall  below  the  price  of  those 
other  countries,  before  any  relief  can  be  afforded  to  the  grower  by 
exportation.  Its  effect,  indeed,  in  this  view,  is  precisely  the  same 
as  that  of  the  high  fixed  duty  which  we  have  been  already  con¬ 
sidering. 

But  the  present  law  has  another  capital  defect,  from  which  the 
system  of  fixed  duties  is  free.  When  the  average  price  of  wheat 
reaches  80s.  per  quarter,  the  ports  are  now  open  for  three  months, 
for  an  unlimited  importation  of  foreign  wheat,  duty  free.  With 
prices  somewhat  about  40s.  per  quarter  on  the  Continent,  in  average 
years,  the  temptation  to  import  into  this  country,  during  the  three 
months  that  the  ports  are  open,  must  operate  to  the  introduction  of 
an  enormous  quantity. 

During  these  three  months,  and  for  a  very  considerable  time 
afterwards,  for  the  effect  cannot  cease  with  the  shutting  of  the  ports, 
the  home  grower  and  the  foreign  grower  are  placed  in  a  state  of 
free  competition,  to  the  ruin  of  the  former.  By  prohibitory  duties 
he  is  encouraged  to  employ  his  capital  on  the  poorer  lands  of  this 
country,  which  require  a  great  expense  for  a  small  produce ;  and 
when  he  has  an  unusually  short  crop,  and  most  stands  in  need  of  a 
high  price,  he  is  all  at  once  exposed  to  the  free  competition  of  the 
grower  of  corn  on  the  Continent,  to  whom  a  price  of  40s.  would  be 
amply  sufficient  to  compensate  him  for  the  whole  cost  of  production. 
A  system  of  fixed  duties  protects  the  farmer  against  this  particular 
danger,  but  it  leaves  him  exposed,  in  the  same  degree  as  on  the 
present  system,  to  all  the  evils  which  arise  from  abundant  crops, 
and  which  can  never  fail  to  accompany  every  plan  of  a  corn  law, 
which  shall  elevate  the  price  of  corn  in  the  country  in  which  they 
prevail,  considerably  above  the  level  of  the  prices  of  other  coun¬ 
tries. 


480 


ON  PROTECTION  TO  AGRICULTURE. 


It  must  not  be  supposed,  however,  that  to  obviate  this  liffkult 
the  importation  of  com  should  be  at  all  times  allowed  wit 
payment  of  any  duty  whatever ;  that  is  not,  under  our  cireumst  i  ices 
the  course  which  I  should  recommend.  I  have  already  si. \  in 
Section  III.,  that  with  a  view  to  the  real  interest  of  the  consu-.u  in 
which  the  interests  of  the  whole  community  are,  and  ever  m  n  ! .. 
included,  whenever  any  peculiar  tax  falls  on  the  produce  of  ai  no 
commodity,  from  the  effects  of  which  all  other  producers  an  - 
empted,  a  countervailing  duty  to  that  amount,  but  no  more,  sh  V 
on  every  just  principle  be  imposed  on  the  importation  of  such  c<  1- 
modity  ;  and,  further,  that  a  drawback  should  be  allowed,  to  the 
same  amount  also  on  the  exportation  of  the  like  commodity.  If. 
before  any  taxation,  the  remunerating  price  of  wheat  was  60s.  per 
quarter,  both  in  England  and  on  the  Continent,  and  in  consequent 
of  the  imposition  of  a  tax,  such  as  tithes,  falling  exclusively  on  th 
farmer,  and  not  on  any  other  producer,  wheat  was  raised  in  England 
to  70s.,  a  duty  of  10s.  should  be  also  imposed  on  the  importation  of 
foreign  corn.  This  tax  on  foreign  corn,  and  on  home  corn  also, 
should  be  drawn  back  on  exportation.  However  large  the  aggregate 
amount  might  be  of  the  drawback  given  to  the  exporter,  it  would 
only  be  returning  to  him  a  tax  which  he  had  before  paid,  and  which 
he  must  have  to  place  him  in  a  fair  state  of  competition  in  the 
foreign  markets,  not  only  with  the  foreign  producer,  but  with  his 
own  countrymen  who  are  producing  other  commodities.  It  is 
essentially  different  from  a  bounty  on  exportation,  in  the  sense  that 
the  word  bounty  is  usually  understood  ;  for  by  a  bounty  is  generally 
meant  a  tax  levied  on  the  people  for  the  purpose  of  rendering  corn 
unnaturally  cheap  to  the  foreign  consumer,  whereas,  what  I  propose, 
is  to  sell  our  corn  at  the  price  at  which  we  can  really  afford  to 
produce  it,  and  not  to  add  to  its  price  a  tax  which  shall  induce  the 
foreigner  rather  to  purchase  it  from  some  other  country,  and  deprive 
us  of  a  trade,  which,  under  a  system  of  free  competition,  we  might 
have  selected. 

The  duty  which  I  have  here  proposed  is  the  only  legitimate 
countervailing  duty,  which  neither  offers  inducements  to  capital  to 
quit  a  trade,  in  which  for  us  it  is  the  most  beneficially  employed, 
nor  holds  out  any  temptations  to  employ  an  undue  proportion  of 
capital  in  a  trade  to  which  it  would  not  otherwise  have  been  des¬ 
tined.  The  course  of  trade  would  be  left  precisely  on  the  same 
footing  as  if  we  were  wholly  an  untaxed  country,  and  every  person 
was  at  liberty  to  employ  his  capital  and  skill  in  the  way  he  should 
think  most  beneficial  to  himself.  We  cannot  now  help  living  under 
a  system  of  heavy  taxation,  but  to  make  our  industry  as  productive 
to  us  as  possible,  we  should  offer  no  temptations  to  capitalists,  to 
employ  their  funds  and  their  skill  in  any  other  way  than  they  would 
have  employed  them  if  we  had  had  the  good  fortune  to  be  untaxed, 
and  had  been  permitted  to  give  the  greatest  development  to  our 
talents  and  industry. 


ON  PROTECTION  TO  AGRICULTURE. 


481 


The  Report  of  the  Committee  on  Agricultural  Distress  in  1821, 
contains  some  excellent  statements  and  reasonings  on  this  subject. 

To  that  important  document  I  can  with  confidence  refer,  in 
support  of  the  principles  which  I  am  endeavouring  to  lay  down  on 
the  impolicy  of  protecting  corn  laws.  The  arguments  in  it  in 
favour  of  freedom  of  trade  appear  to  me  unanswerable  ;  but  it  must 
be  confessed,  that  in  that  same  Report,  recommendations  are  made 
utterly  inconsistent  with  those  principles. 

After  condemning  restrictions  on  trade,  it  recommends  measures 
of  permanent  restriction  ;  after  showing  the  evils  resulting  from 
prematurely  taking  poor  lands  into  cultivation,  it  countenances  a 
system  which,  at  all  sacrifices,  is  to  keep  them  in  tillage.  In  prin¬ 
ciple,  nothing  so  odious  as  monopoly  and  restriction ;  in  practice, 
nothing  so  salutary  and  desirable. 

The  Committee  on  Agriculture  this  year  avoid  taking  any  notice 
of  the  sound  doctrines  entertained  by  the  last  Committee,  but  have 
founded  their  whole  Report  on  the  erroneous  ones ;  and  conclude 
their  recommendations  to  the  House  in  the  following  words  : — “  If 
the  circumstances  of  this  country  should  hereafter  allow  the  trade 
in  corn  to  be  permanently  settled  upon  a  footing  constantly  open 
to  all  the  world,  but  subject  to  suck  a  fixed  and  uniform  duty  as  might 
compensate  to  the  British  grower  the  difference  of  expense  at  which  Ids 
corn  can  be  raised  and  brought  to  market ,  together  with  the  fair  rate  of 
profit  upon  the  capital  employed ,  compared  with  the  expense  of  pro¬ 
duction^  and  other  charges  attending  corn  grown  and  imported  from 
abroad ,  such  a  system  would,  in  many  respects,  be  preferable  to  any 
modification  of  regulations  depending  upon  average  prices,  with  an 
ascending  and  descending  scale  of  duties  ;  because  it  would  prevent 
the  effects  of  combination  and  speculation,  in  endeavouring  to  raise 
or  depress  those  averages,  and  render  immaterial  those  inaccuracies 
which,  from  management  or  negligence,  have  occasionally  produced, 
and  may  again  produce  such  mischievous  effects  upon  our  market ; 
but  your  Committee  rather  look  forward  to  such  a  system  as  fit  to 
be  kept  in  view  for  the  ultimate  tendency  of  our  law,  than  as  prac¬ 
ticable  within  any  short  or  definite  period.” 

The  system  which  we  are  to  keep  in  view  for  the  ultimate  ten¬ 
dency  of  our  law,  we  are  told,  is  one  of  a  fixed  duty ;  but  on  what 
principle  is  the  fixed  duty  to  be  calculated?  not  on  that  which  I 
have  endeavoured  to  show  is  the  only  sound  one,  namely,  that  the 
duty  should  accurately  countervail  the  peculiar  burthens  to  which 
the  grower  of  corn  is  subject,  but  a  fixed  duty  which  should  com¬ 
pensate  to  the  British  grower  the  difference  of  expense  at  which 
his  corn  can  be  raised  and  brought  to  market,  compared  with  the 
expense  of  production,  and  other  charges  attending  corn  grown 
and  imported  from  abroad.  Instead  of  holding  out  any  hope  to 
the  consumer  that  we  shall  at  any  future  time  legislate  on  a  principle 
which  shall  enable  him  to  purchase  corn  at  as  cheap  a  price  as 
British  industry  shall  be  enabled  to  obtain  it  for  him, — instead  of 

ii  H 


482 


ON  PROTECTION  TO  AGRICULTURE. 


giving  any  security  to  the  British  capitalist  that  wages  shall  not 
be  unnaturally  raised  in  this  country,  by  obliging  the  labourer  to 
purchase  corn  at  a  dear,  and  not  at  a  cheap  rate — a  security  so 
essential  to  the  keeping  up  the  rate  of  profits, — instead  of  bidding 
the  farmer  look  forward  to  a  time  when  he  will  be  spared  from  the 
fluctuations  in  the  price  of  the  commodity  which  he  raises,  and 
which  are  so  destructive  to  his  interests,  we  are  told  that  the 
present  mode  in  which  the  price  of  corn  is  kept  in  tins  country 
habitually  and  considerably  above  its  price  in  other  countries,  is 
not,  perhaps,  the  best  mode  of  effecting  that  object,  as  it  may  be 
more  conveniently  done  by  means  of  a  fixed  duty  instead  of  a 
varying  duty ;  but,  at  any  rate,  corn  is  to  be  rendered  habitually 
and  considerably  dearer  in  this  country  than  in  others.  A  duty 
calculated  upon  the  principle  of  the  Committee  cannot  fail  to 
perpetuate  a  difference  of  price  between  this  and  other  countries, 
equal  to  the  difference  of  expense  of  growing  corn  in  this  country 
beyond  the  expense  of  growing  it  in  others.  If  we  had  not  already 
pushed  the  endeavour  of  providing  food  for  ourselves  too  far, — if 
we  had  not,  by  our  own  acts,  made  the  expense  of  growing  corn  in 
this  country  greater  than  in  others,  such  a  law  would  be  nugatory, 
because  no  difference  of  expense  would  exist.  Is  it  not,  then,  in 
the  highest  degree  absurd  first  to  pass  a  law,  under  the  operation  of 
which  the  necessity  is  created  of  cultivating  poor  lands,  and  then, 
having  so  cultivated  them  at  a  great  expense,  make  that  additional 
expense  the  ground  for  refusing  ever  to  purchase  corn  from  those 
who  can  afford  to  produce  it  at  a  cheaper  price  ?  I  can  produce  a 
quantity  of  cloth  which  affords  me  a  remunerating  price  at  60/., 
which  I  can  sell  to  a  foreign  country,  if  I  will  lay  out  the  proceeds 
in  the  purchase  of  thirty  quarters  of  wheat  at  21.  per  quarter;  but 
I  am  refused  permission  to  do  so,  and  am  obliged,  by  the  operation 
of  a  law,  to  employ  the  capital  which  yielded  me  60/.  in  cloth,  in 
raising  fifteen  quarters  of  wheat  at  4/.  per  quarter. 

The  exchange  of  the  cloth  for  wheat, — the  production  of  the 
cloth  is  wholly  prevented  by  the  countervailing  duty  of  21.  per 
quarter  on  the  importation  of  wheat,  which  obliges  me  to  raise  the 
corn,  and  prevents  me  from  employing  my  capital  in  the  making  of 
cloth  for  the  purpose  of  exchanging  it  for  wheat. 

It  is  true,  indeed,  that  in  both  cases  I  raise  a  commodity  worth 
60/.,  and  to  those  who  look  only  at  money,  and  not  money’s 
worth,  either  of  these  employments  of  my  capital  appears  equally 
productive ;  but  a  moment’s  reflection  will  convince  us  that  there 
is  the  greatest  difference  imaginable  between  obtaining  (with  the 
same  quantity  of  labour,  mind)  thirty  quarters  of  wheat,  and  fifteen 
quarters,  although  either  should,  under  the  circumstances  supposed, 
be  worth  60/. 

If  the  principle  recommended  by  the  Committee  were  consistently 
followed,  there  is  no  commodity  whatever  which  we  can  raise  at 
home  which  we  should  ever  import  from  abroad ;  we  should  cul- 


ON  PROTECTION  TO  AGRICULTURE. 


483 


tivate  beet-root,  and  make  our  own  sugar,  and  impose  a  duty  on 
the  importation  of  sugar  equal  to  the  difference  of  expense  ot 
growing  sugar  here,  and  growing  it  in  the  East  or  West  Indies. 
We  should  erect  hot-houses,  and  raise  our  own  grapes  for  the 
purpose  of  making  wine,  and  protect  the  maker  of  wine  by  the 
.same  course  of  policy.  Either  the  doctrine  is  untenable  in  the 
case  of  corn,  or  it  is  to  be  justified  in  all  other  cases.  Does  the 
purchaser  of  a  commodity  ever  inquire  concerning  the  terms  on 
which  the  producer  can  afford  to  raise  or  make  it?  His  only  con¬ 
sideration  is  the  price  at  which  he  can  purchase  it.  When  lie 
knows  that,  he  knows  the  cheapest  mode  of  obtaining  it ;  if  he 
can  himself  produce  it  cheaper  than  he  can  purchase  it,  he  will 
devote  himself  to  its  production  rather  than  to  the  production 
of  the  commodity  with  which  he,  in  fact,  must  otherwise  pur¬ 
chase  it. 

But  there  are  persons,  and  of  the  number  of  those,  too,  who  arc 
considered  of  authority  on  these  matters,  who  say  this  reasoning 
would  be  correct  if  we  were  about  to  employ  capital  on  the  land 
with  a  view  to  obtain  more  corn  ;  that  then  it  would  undoubtedly 
be  wise  to  consider  whether  we  could  purchase  it  from  abroad 
cheaper  than  we  could  grow  it  at  home,  and  govern  our  proceedings 
accordingly  ;  but  that,  when  capital  has  been  expended  on  the  land, 
it  is  quite  another  question,  since  much  of  that  capital  would  be 
lost,  if  we  then  resolved  rather  to  import  cheap  corn  from  abroad 
than  grow  it  at  a  dear  price  at  home.  That  some  capital  would  be 
lost  cannot  be  disputed,  but  is  the  possession  or  preservation  of 
capital  the  end,  or  the  means?  The  means,  undoubtedly.  What 
we  want  is  an  abundance  of  commodities,  and  if  it  could  be  proved 
that,  by  the  sacrifice  of  a  part  of  our  capital,  we  should  augment 
the  annual  produce  of  those  objects  which  contribute  to  our  enjoy¬ 
ment  and  happiness,  we  ought  not,  I  should  think,  to  repine  at  the 
loss  of  a  part  of  our  capital. 

Mr  Leslie  has  invented  an  ingenious  apparatus,  by  the  use  ot 
which  we  might  fill  our  ice-houses  with  ice.  Suppose  a  capital  ot 
half  a  million  were  expended  on  these  machines,  would  it  not 
nevertheless,  be  wise  in  us  to  get  our  ice,  without  any  expense, 
from  the  frozen  ponds  in  our  neighbourhoods,  rather  than  employ 
the  labour,  and  waste  the  acid  or  other  ingredients  in  the  manufac¬ 
ture  of  ice,  although,  by  so  doing,  we  should  for  ever  sacrifice  the 
300,000^.  which  we  had  expended  on  air-pumps  ? 

In  this  recommendation,  which  must  have  the  effect  of  perpe¬ 
tuating  the  difference  between  the  price  of  corn  here  and  its  price 
in  other  countries,  we  should  naturally  conclude  that  the  Com¬ 
mittee  did  not  admit  the  evils  which  from  time  to  time  must  thence 
inevitably  arise  in  this  country.  Quite  the  contrary  ;  they  admit 
them  to  the  fullest  extent,  and  they  refer  to  the  statements  made 
on  that  subject  in  a  former  report,  for  the  purpose  of  expressing 
their  approbation  of  the  x’easoning  which  is  founded  on  them. 


434 


ON  PROTECTION  TO  AGRICULTURE. 


They  say,  “The  excessive  inconvenience  and  impolicy  of  our  present 
system  have  been  so  fully  treated  and  so  satisfactorily  exposed  in 
the  report  already  alluded  to  (pp.  10  and  12,)  that  it  is  unneces¬ 
sary  to  do  more  than  to  refer  to  it,  adding  only,  that  every  tiling 
which  has  happened  subsequent  to  the  presentation  of  that  report, 
as  well  as  all  our  experience  since  1815,  has  more  and  more  tended 
to  demonstrate  how  little  reliance  can  be  placed  upon  a  regulation 
which  contains  an  absolute  prohibition  up  to  a  certain  price,  and  an 
unlimited  competition  beyond  that  price  ;  which,  so  far  from 
affording  steadiness  to  our  market,  may  at  one  time  reduce  prices, 
already  too  low ,  still  lower  than  they  might  have  been  even  under  a 
free  trade;  and  at  another,  unnecessarily  enhance  the  prices  already 
too  high,  which  tends  to  aggravate  the  evils  of  scarcity,  and  render 
more  severe  the  depression  of  profits  from  abundance ” 

Here  the  two  evils  of  our  corn  law  are  very  fairly  stated ;  and 
against  one  of  them,  that  of  unlimited  competition  beyond  the  price 
of  80s.,  a  remedy,  though  by  no  means  the  best  which  might  have 
been  temporarily  established,  is  recommended  ;  but,  instead  of 
suggesting  any  means  of  alleviating  or  remedying  the  other  evil, 
proceeding  from  abundance,  which  is  so  fully  acknowledged,  mea¬ 
sures  are  recommended  for  immediate  and  temporary  adoption ;  and 
others  are  suggested  as  desirable  to  be  at  a  future  time  permanently 
adopted,  which  cannot  fail  to  perpetuate  this  evil,  because  they 
cannot  fail  to  make  the  price  of  corn  constantly  and  considerably 
higher  in  this  than  in  any  other  neighbouring  country. 

One  of  the  grounds  advanced  for  high  duties  on  the  importation 
of  corn  is,  that  the  manufacturer  is  protected  by  high  duties  against 
the  competition  of  the  foreign  manufacturer,  and  that  the  cultivator 
of  the  soil  should  have  a  similar  protection  against  the  foreign  grower 
of  corn.  To  this  it  is  impossible  to  give  an  answer  in  language 
more  satisfactory  than  has  been  done  by  Lord  Grenville. 

“  If  the  measures  which  had  formerly  been  adopted  for  the  pro¬ 
tection  of  trade  and  manufactures  were  right,  let  them  be  continued  ; 
if  wrong,  let  them  be  abrogated  ;  not  suddenly,  but  with  that 
caution  with  which  all  policy,  however  erroneous,  so  engrafted  into 
our  usage  by  time,  should  be  changed ;  but  let  it  be  consecrated  as 
a  principle  of  legislation,  that  in  no  case  should  the  grounds  for 
advising  the  Legislature  to  afford  any  particular  protection,  rest- 
on  the  protection  which  might  have  been  afforded  in  any  other 
quarter.  In  fact,  he  could  not  well  conceive  how  the  noble  earl 
could  argue,  that  measures  which  he  admitted  to  have  been  wrong 
with  respect  to  manufactures,  would  nevertheless  be  right  with 
respect  to  agriculture. 

“It  would  be  an  extraordinary  mode  of  doing  justice,  thus  to 
declare  that,  because  a  large,  the  largest,  part  of  the  community 
were  already  oppressed  by  favours  shown  to  one  particular  class, 
they  should  be  still  farther  oppressed  by  favours  shown  to  another 
particular  class.” — Speech ,  March  15,  1815. 


ON  PROTECTION  TO  AGRICULTURE 


485 


If  any  thing  more  is  required  against  this  pretension  of  protection 
for  the  land,  it  is  furnished  in  the  following  passage  of  the  Report 
of  the  Agricultural  Committee  of  last  year  : — 

“They  (the  Committee)  observe,  that  one  of  the  witnesses,  in 
order  to  illustrate  his  ideas  and  the  wishes  of  the  petitioners,  has 
furnished  a  table  of  the  duties  payable  on  foreign  manufactured 
articles,  of  which  several  are  subject  to  duties  of  excise  in  this 
country  ;  and  upon  which  the  importation  duty,  as,  for  instance, 
upon  the  article  of  glass,  is  imposed  in  a  great  measure  to  counter¬ 
vail  the  duty  upon  that  article  manufactured  in  this  kingdom. 

“  But  the  main  ground  upon  which  your  Committee  aYe  disposed 
to  think  that  the  House  will  look  with  some  mistrust  to  the  sound¬ 
ness  of  this  principle,  is — first,  that  it  maybe  well  doubted  whether 
(with  the  exception  of  silk)  any  of  our  considerable  manufactures 
derive  benefit  from  this  assumed  protection  in  the  markets  of  this 
country  :  for  how  could  the  foreign  manufactures  of  cotton,  of 
woollens,  of  hardware,  compete  with  our  own  in  this  country,  when 
it  is  notorious  that  we  can  afford  to  undersell  them  in  the  products 
of  those  great  branches  of  our  manufacturing  industry,  even  in  their 
own  markets,  notwithstanding  that  cotton  and  wool  are  subject  to 
a  direct  duty  on  importation,  not  drawn  back  upon  their  export  in 
a  manufactured  state,  as  well  as  to  all  the  indirect  taxation,  which 
affects  capital  in  these  branches,  in  common  with  that  capital  which 
is  employed  in  raising  the  productions  of  the  soil?” 

This  is  followed  by  other  passages  which  are  excellent,  and  all 
tend  to  show,  that  the  protection  which  manufactures  are  said  to 
possess,  is  not  really  afforded  them  ;  though,  if  it  were,  Lord 
(irenville’s  argument  is  conclusive  against  that  being  a  ground  for 
extending  protection  to  agriculture. 

It  is  to  be  hoped  that  we  shall,  even  in  the  present  session  of 
Parliament,  get  rid  of  many  of  these  injurious  laws ;  a  better  spirit 
of  legislation  appears  likely  to  prevail  in  the  present  day  ;  and  that 
absurd  jealousy  which  influenced  our  forefathers,  will  give  way  to 
the  pleasing  conviction,  that  we  can  never,  by  freedom  of  commerce, 
promote  the  welfare  of  other  countries  without  also  promoting  our 
own. 

The  passage  from  the  Report  is  useful  in  another  respect :  it 
shows  us  that  the  writer  of  it  understood  well  what  a  countervailing 
duty  is,  and  should  be  ;  for  he  states  that  the  duty  on  the  impor¬ 
tation  of  glass  “  is  imposed  in  a  great  measure  to  countervail  the 
duty  upon  that  article  manufactured  in  this  kingdom.”  How  is 
this  passage  to  be  reconciled  with  the  recommendation  in  both 
Reports,  that,  in  imposing  a  duty  on  the  importation  of  corn,  “it 
should  be  calculated  fairly  to  countervail  the  difference  of  expense, 
including  the  ordinary  rate  of  profit,  at  which  corn,  in  t he  present 
state  of  this  country,  can  be  grown  and  brought  to  market  within  the 
United  Kingdom,  compared  with  the  expense,  including  also  the 
ordinary  rate  of  profit,  of  producing  it  in  any  of  those  countries 


4S6 


OX  PROTECTION  TO  AGRICULTURE. 


from  whence  our  principal  supplies  of  foreign  corn  have  usually 
been  drawn,  joined  to  the  ordinary  charge  of  conveying  it  from 
thence  to  our  markets?” 


SECTION  VIII. 

On  the  Project  of  advancing  Money  on  Loan,  to  Speculators  in  Corn,  at  a  low  Interest. 

It  is  allowed  by  the  Report,  that  “  the  universal  rule  of  allowing 
all  articles,  as  much  as  possible,  to  find  their  own  natural  level,  by 
leaving  the  supply  to  adjust  itself  to  the  demand,”  discouraged  the 
Committee  from  recommending  that  Government  should  employ 
money,  in  making  purchases  of  corn,  with  a  view  to  sell  it  when  the 
price  rose ;  but  the  Committee  do  not  appear  to  have  seen  that  the 
same  universal  rule,  of  which  they  speak  with  approbation,  ought 
to  have  discouraged  them  also  from  recommending  that  Govern¬ 
ment  should  advance  money,  at  a  low  rate  of  interest,  to  persons 
who  should  purchase  wheat,  to  deposit  it  in  the  King’s  warehouses, 
while  it  was  under  60s.  per  quarter. 

Will  not  such  an  advance  of  money  at  a  low  rate  of  interest,  and 
for  twelve  months  certain,  if  the  parties  desire  it,  prevent  the  article 
from  “  finding  its  own  level,”  and  “  will  the  supply  be  left  to  adjust 
itself  to  the  demand  ?” 

If  the  cause  of  the  low  price  of  corn  be  owing  to  an  abundant 
quantity  in  the  country',  and  not  to  an  abundant  quantity  hurried 
prematurely  to  market  by  the  distress  of  the  farmers,  the  proposed 
remedy  will  be  really  mischievous,  as  in  that  case  we  must  go 
through  the  ordeal  of  low  prices,  and  increased  consumption,  which 
is  always  in  a  degree  consequent  on  low  price,  before  the  supply 
will  adjust  itself  to  the  demand,  and  prices  become  again  remuner 
ative.  By  the  encouragement  thus  given  to  storing  corn  for  a 
twelvemonth,  the  period  of  glut  may  be  retarded,  but  it  must  come 
at  last.  On  the  other  supposition,  that  from  alarm  or  distress  more 
than  a  due  portion  of  corn  is  prematurely  sent  to  market,  and  that 
before  the  next  harvest  the  whole  supply  will,  in  consequence,  prove 
deficient,  and  the  price  will  rise ;  I  must  observe,  that  sharp-sighted 
individuals,  prompted  by  a  regard  to  their  interest,  can  discover 
this,  if  it  be  so,  with  more  certainty  than  Government.  Money  is 
not  wanted  to  purchase  the  wheat  thus  unduly  brought  to  market ; 
nothing  is  required  but  a  conviction  of  the  probability  of  a  diminished 
supply,  or  an  increased  demand,  and  a  probable  rise  of  price,  to 
awaken  the  spirit  of  speculation.  If  there  were  any  well-founded 
opinion  of  such  a  rise,  we  should  soon  witness  a  more  than  usual 
activity  among  the  corn-dealers.  When  there  was  a  prospect  of 
continued  wet  weather,  just  before  the  harvest  of  last  yyear,  did  we 
not  see  an  immediate  spring  in  the  price  of  corn?  On  what  was 


ON  PROTECTION  10  AGRICULTURE. 


487 


such  rise  founded,  but  on  an  anticipation  of  probable  scarcity,  and 
an  increased  price  ?  If,  then,  there  be  any  good  foundation  for  a 
probable  deficiency  before  the  wheat  of  the  next  harvest  comes  into 
use,  individuals  will  be  found  to  speculate  without  any  encourage¬ 
ment  from  Government ;  the  difference  between  a  rate  of  interest 
of  3  per  cent,  and  of  5  per  cent,  must  be  of  little  importance  in 
such  a  transaction,  and  as  far  as  the  public  is  concerned  may  be 
wholly  neglected,  when  we  are  considering  the  advantages  of  such 
a  measure. 

It  has  been  said  that  similar  advances  have  been  made  to  the 
commercial  interest  on  more  than  one  occasion,  why  then  should 
the  agricultural  interest  be  excluded  from  a  similar  benefit  ?  In 
the  first  place,  I  doubt  whether  the  measure  be  justifiable  in  any 
case  whatever ;  but  it  cannot  be  disputed  that  the  commercial  class 
made  their  application  for  this  indulgence  under  very  different  cir¬ 
cumstances  from  the  agricultural  class. 

The  commercial  class  are  liable  to  stagnation  of  business ;  a 
market  for  which  they  have  prepared  their  goods  may,  during  war 
(and  it  is  only  during  war  that  such  advances  have  been  made)  be 
shut  against  them.  On  the  probability  of  selling  their  goods,  they 
have  given  bills  which  are  becoming  due,  and  their  character  and 
fortune  depend  on  fulfilling  their  engagements.  All  they  want  is 
time  ;  by  forbearing  to  produce  more  of  the  commodity  for  which 
there  is  a  diminished  demand,  they  are  sure,  though  probably  with 
great  loss,  to  dispose  of  their  articles.  Is  the  situation  of  the 
farmer  any  thing  like  this?  Has  he  any  bills  becoming  due?  Do 
all  his  future  transactions  depend  on  his  momentarily  sustaining  his 
credit  ?  Are  markets  ever  wholly  shut  against  him  ?  Is  it  a  mere 
supply  of  money  to  meet  his  bills  that  he  requires?  The  cases  are 
most  widely  different,  and  the  analogy  which  is  attempted  to  be 
set  up  between  them  fails  in  every  particular. 


SECTION  IX. 


Can  the  present  State  of  Agricultural  Distress  be  attributed  to  Taxation. 


Tiie  present  distress  is  caused  by  an  insufficient  price  for  the 
produce  of  the  land,  which  it  appears  impossible,  with  any  degree 
of  fairness,  to  ascribe  to  taxation.  Taxation  is  of  two  kinds,  it 
either  falls  on  the  producer  of  a  commodity  in  his  character  of 
producer,  or  it  falls  on  him  as  a  consumer.  When  a  farmer  has 
to  pay  an  agricultural  horse-tax,  tithes,  land-tax,  he  is  taxed  as  a 
producer,  and  he  seeks  to  repay  himself,  as  all  other  producers  do, 
by  imposing  an  additional  price,  equivalent  to  the  tax,  on  the  com¬ 
modity  which  he  produces.  It  is  the  consumer,  then,  that  finally 


488 


OX  PROTECTION  TO  AGRICULTURE. 


pays  the  tax,  and  not  the  producer,  as  nothing  can  prevent  the 
latter  from  transferring  the  tax  to  the  consumer,  but  the  produc¬ 
tion  of  too  great  a  quantity  of  the  commodity  for  the  demand. 
'Whenever  the  price  of  a  commodity  does  not  repay  to  the  producer 
all  the  charges  of  every  description  which  he  is  obliged  to  incur, 
it  foils  to  give  him  a  remunerating  price  ;  it  places  him  under  a 
disadvantage,  as  compared  with  the  producers  of  other  commodi¬ 
ties  ;  he  no  longer  gets  the  usual  and  ordinary  profits  of  capital, 
and  there  are  only  two  remedies  by  which  he  can  be  relieved  : 
one,  the  diminution  of  the  quantity  of  the  commodity,  which  will 
not  fail  to  raise  its  price,  if  the  demand  do  not  at  the  same  time 
diminish  ;  the  other,  the  relieving  him  from  the  taxes  which  he 
pays  as  a  producer.  The  first  remedy  is  certain  and  efficacious  ; 
the  second  is  of  a  more  doubtful  description,  because,  if  the  price 
of  the  commodity  did  once  remunerate  the  producer,  after  the  tax 
was  imposed,  it  could  only  fall  afterwards  from  increased  supply, 
or  diminished  demand. 

The  repeal  of  the  tax  will  not  diminish  quantity  ;  and  if  it 
does  not  further  lower  the  price,  it  will  not  increase  demand.  If 
the  price  falls  still  lower,  then  the  repeal  of  the  tax  will  not  afford 
relief  to  the  producer.  It  is  only  in  the  case  of  the  commodity 
falling  no  lower,  although  the  producer  is  relieved  from  one  of  the 
charges  of  production,  that  he  can  be  said  to  be  benefited  by  the 
repeal  of  a  tax  on  production ;  and  a  very  reasonable  doubt  may 
be  entertained,  whether  the  competition  of  the  sellers  may  not 
further  diminish  the  price  of  the  commodity  in  consequence  of  the 
repeal  of  the  tax.  That  taxes  on  production  may  be  the  cause 
of  an  excess  of  the  supply  above  the  demand,  is  true,  when  the 
tax  is  a  new  one,  and  when  the  consumers  are  unwilling  to  re-pay, 
in  the  additional  price,  the  additional  charge  imposed  on  the  pro¬ 
ducer.  But  this  is  not  the  case  in  this  country  at  the  present 
moment ;  the  taxes  are  not  new  ones  ;  the  prices  of  raw  produce 
were  sufficiently  high,  notwithstanding  the  taxes,  to  afford  a  remu¬ 
nerating  price  to  the  producer;  and  no  doubt  can  exist,  that  if 
there  had  been  no  such  taxes,  raw  produce  would  have  been  con¬ 
siderably  lower  than  it  now  is.  The  same  cause  which  made  wheat 
fall  from  80s.  to  60s.,  or  25  per  cent.,  would  have  made  it  fall  from  60s. 
to  45s.,  if,  in  consequence  of  fewer  taxes  on  the  land,  60s.  and  not 
80s.  had  been  the  ordinary  average  price.  Some  of  the  charges  of 
production  have  actually  been  diminished,  while  there  is  every 
reason  to  conclude,  that  the  quantity  consumed  by  the  people  has 
been  increasing. 

The  alteration  in  the  value  of  money  has  been  generally  supposed 
to  be  favourable  to  the  working  classes,  as  their  money  wages  are 
said  not  to  have  fallen  in  proportion  to  the  increased  value  of  money, 
and  the  fall  in  the  price  of  necessaries.  Their  condition  is  then 
bettered,  and  their  power  of  consuming  increased ;  but  prices  can 
never  stand  against  a  great  augmentation  of  quantity,  and  therefore 


ON  PROTECTION  TO  AGRICULTURE. 


489 


there  is  no  other  rational  solution  of  the  cause  of  the  fall  of  agricul¬ 
tural  produce  but  abundance. 

Taxes  on  consumers  affect  consumers  generally,  and  will  in  no 
way  account  for  the  distress  of  a  particular  class,  or  for  an  insuffi¬ 
cient  price  of  the  commodity  which  they  grow  or  manufacture. 
The  taxes  on  candles,  soap,  salt,  &c.,  &c.,  are  not  only  paid  by 
farmers,  but  by  all  persons  who  consume  those  commodities.  The 
repeal  of  those  taxes  would  afford  relief  to  all,  and  not  to  the  agri¬ 
cultural  class  particularly. 

Those  who  maintain,  that  on  no  reasonable  grounds  can  it  be 
shown,  that  taxation  is  the  cause  of  agricultural  distress  and  of  the 
low  price  of  corn,  are  sometimes  represented  as  maintaining  that  a 
repeal  of  taxes  will  afford  no  relief ;  such  a  conclusion  shows  a  want 
of  candour  or  of  intelligence,  for  it  is  perfectly  consistent  to  main¬ 
tain,  that  taxation  is  not  the  cause  of  some  particular  distress,  and 
at  the  same  time  insist  that  a  repeal  of  taxes  would  afford  relief. 
When  Lord  John  Russell's  horse  falls  because  he  trips  over  a  stone, 
and  is  enabled  to  get  up  again  when  relieved  from  the  burthen  of 
his  harness,  it  would  surely  be  incorrect  to  say  that  the  horse  fell 
because  he  was  burthened  with  harness  ;  though  it  would  be  right 
to  assert  that  the  tripping  over  the  stone  threw  him  down,  while 
the  relief  from  the  confinement  of  the  harness  enabled  him  to  net 
up  again. 

For  my  own  part,  then,  being  of  opinion  that  almost  all  taxes  on 
production  fall  finally  on  the  consumer,  I  think  that  no  repeal  of 
taxes  could  take  place  which  would  have  any  other  effect  than  to 
relieve  consumers  generally  of  a  part  of  the  burthens  which  they 
now  bear.  Although  I  am  at  all  times  a  friend  to  the  most  rigid 
economy  in  the  public  expenditure,  yet  I  am  also  convinced,  that 


there  are  causes  of  distress,  to  the  producers  of  a  particular  com-  V 
modity,  arising  from  abundant  quantity,  from  which  no  practicable 
repeal  of  taxes  could  materially  relieve,  particularly  if  the  commo¬ 
dity  be  agricultural  produce,  and  if  its  ordinary  price  be  kept  above 
the  level  of  the  prices  of  other  countries  by  restrictions  on  impor¬ 
tation. 

Against  such  distress  no  country,  and  more  particularly  no 
country  having  a  bad  system  of  corn  laws,  is  exempted.  If  we 
were  absolutely  without  any  taxes  whatever ;  if  the  public  expendi¬ 
ture  was  the  most  economical  possible,  and  was  supported  by  a 
revenue  drawn  from  lands  appropriated  for  that  purpose  ;  if  we  had 
no  national  debt,  no  sinking  fund,  we  yet  should  be  exposed  to  a 
destructive  fall  of  price  from  occasional  abundance.  It  is  impossible 
to  read  Mr  Tooke’s  able  evidence  before  the  Agricultural  Committee 
of  1821,  without  being  struck  with  the  surprising  effects  which  an 
excess  of  supply  produces  on  price,  and  for  which  there  is,  in  fact, 
no  effectual  remedy  but  a  reduction  of  quantity.  If  there  be  any 
other  remedy,  why  do  not  those  who  complain  of  the  distress,  and 
who  have  been  in  situations  so  favourable  to  make  themselves 


490 


OX  PROTECTION  TO  AGRICULTURE. 


hoard,  state  it.  ?  With  the  exception  of  a  reduction  of  taxation, 
new  and  additional  protection  against  the  competition  of  foreigners 
for  every  description  of  agricultural  produce,  direct  purchases  to 
he  made  by  Government,  or  encouragements  to  others  to  make 
them,  I  have  heard  no  remedies  suggested :  and  as  to  the  efficacy 
of  these  remedies,  I  must  leave  that  to  the  reader’s  judgment; 
my  own  opinion  of  them  having  been  already  most  decidedly 
expressed. 

On  the  causes  which  have  produced  the  degree  of  abundance  to 
which  I  attribute  all  that  part  of  the  fall  of  raw  produce  since  1819, 
which  cannot  fairly  be  ascribed  to  the  alteration  in  the  value  of  the 
currency,*  it  will  not  be  necessary  for  me  to  say  much ;  we  are,  I  think, 
justified  in  ascribing  it  to  a  succession  of  good  crops,  to  an  increasing 
importation  from  Ireland,  and  ro  the  increase  of  tillage  which  the  high 
prices  and  the  obstacles  opposed  to  importation  during  the  war 
occasioned.  Many  of  the  gentlemen  who  gave  evidence  before  the 
Committee  concurred  in  describing;  the  harvests  of  1819  and  1820 
as  unusually  abundant.  Mr  Wakefield  said  on  the  5th  April  1821, 
u  I  think  there  is  a  wonderful  quantity  of  corn  in  the  country  ;  I 
now  think  that  there  is  as  much  corn  left  in  the  country,  as  gener¬ 
ally,  in  common  years,  there  is  after  harvest.”  “  I  think,  that  if  you 
were  to  have  for  the  next  two  or  three  years,  fair  average  crops,  it 
would  leave  you  with  a  great  stock  in  hand.” 

Mr  Iveson. — “  I  think  the  last  crop  was  abundant ;  the  crop  of 
1820  was  considerably  beyond  an  average.” — P.  338. 

Mr  J.  Brodie. — “  The  crop  in  Scotland  was  very  abundant  last 
year.” 

“  The  crop  of  the  year  before  was  above  an  average  crop  too.” 
— P.  327. 

Besides  this  abundant  crop  at  home,  the  importations  from 
Ireland  were  unusually  great,  as  will  be  seen  by  the  following 
account  of  the  importation  of  oats,  wheat,  and  wheat-flour,  the 
production  of  Ireland,  imported  into  Great  Britain,  which  was  laid 
before  the  Agricultural  Committee  of  1821. 


Years  ending  5th  Jan. 

Oats — Qrs. 

Wheat — Qrs. 

Wheat  flour — Cwt. 

5th  Jan.  1818 

594,337 

50,842 

16,238 

1819 

1,001,247 

95,677 

33,258 

1820 

759,608 

127,308 

92,893 

1821 

892,605 

351,871 

180.375 

For  three  months. 

From  5th  Jan.  1821  ) 
to  5th  April  1821  j 

437,245 

218,764 

99,062 

It  will  be  seen  by  the  above  account  how  greatly  the  importation 
from  Ireland  has  increased,  which,  coming  in  addition  to  the 
abundant  quantity  yielded  by  the  harvests  of  1819  and  1820,  will, 
I  think,  sufficiently  account  for  the  depression  of  price. 


To  that  cause  it  will  have  been  seen  I  ascribe  a  fall  of  10  per  cent. 


ON  PROTECTION  TO  AGRICULTURE. 


491 


To  trace  this  abundance  to  its  source  is  not,  however,  necessary 
in  this  case;  it  is  sufficient  to  show  that  the  low  price  cannot 
have  arisen  from  any  other  cause  but  an  increased  supply,  or  a 
diminished  demand,  to  be  convinced  that  the  evil  admits  of  no 
other  effectual  remedy  but  a  reduction  of  quantity,  or  an  increased 
demand. 

That  an  abundant  quantity  has  been  exposed  to  sale  will  be 
shown  by  the  account  of  the  sales  in  Mark  Lane.*  It  will  be 
found,  too,  that  an  unusually  large  quantity  has  arrived  in  the  port 
of  London  from  ports  in  Great  Britain  and  Ireland. 

It  must,  indeed,  not  be  forgotten  that  the  fall  of  price  is  attri¬ 
buted  to  the  abundant  quantity  actually  in  the  market,  and  the 
reasoning  founded  on  the  doctrine  of  abundance  being  the  cause 
of  low  price  would  in  no  degree  be  invalidated  if,  before  the  next 
harvest,  our  supply  should  be  found  to  be  below  the  demand, 
and  there  should  be  a  great  increase  of  price.  We  can  have  no 
unequivocal  proof  of  abundance  but  by  its  effects.  I  believe  in  the 
existence  of  an  abundant  quantity,  but  I  should  not  think  my 
argument  in  the  least  weakened  if  corn  should,  before  next  harvest, 
rise  to  80s.  per  quarter. 


CONCLUSION. 

Having  disposed  of  most  of  the  subjects  which  are  intimately 
connected  with  the  question  of  the  policy  which  it  would  be  wise 
for  this  country  to  adopt,  respecting  the  trade  in  corn,  1  shall 
briefly  recapitulate  the  opinions  which  will  be  found  more  at  large 
in  various  parts  of  this  inquiry. 

The  cause  of  the  present  low  price  of  agricultural  produce  is 
partly  the  alteration  in  the  value  of  the  currency,  and  mainly,  an 
excess  of  supply  above  the  demand.  To  Mr  Peel’s  bill,  even  in 
conjunction  with  the  operation  of  the  Bank,  no  greater  effect  on 
the  price  of  corn  can,  with  any  fairness,  be  attributed  than  10  per 
cent.,  and  to  that  amount  the  far  greatest  part  of  the  taxation  ot 
the  country  has  been  increased ;  but  this  increased  taxation  does 
not  fall  on  the  landed  interest  only ;  it  falls  equally  on  the  funded 
interest,  and  every  other  interest  in  the  country.  Suppose  the 
land  to  pay  one  half  of  the  whole  taxation  of  the  country,  after 
deducting  that  part  of  the  expenditure  which  depends  on  the  value 
of  money,  and  which  would  therefore  be  augmented  in  proportion 
as  money  fell  in  value,  the  whole  increase  of  taxation  which,  since 
1810,  has  fallen  upon  the  landed  interest,  taking  tenants  and  land¬ 
lords  together,  cannot  have  exceeded  2  millions ;  but,  suppose  it 


See  Appendix  B. 


492 


ON  PROTECTION  TO  AGRICULTURE. 


4  millions  per  annum,*  is  4  millions  per  annum  the  amount  of  the 
whole  loss  sustained  by  landlords  and  tenants  together  by  the  fall 
in  the  price  of  agricultural  produce?  Impossible;  because,  by  the 
allegations  of  the  landed  interest,  all  rent  is  now  paid  from  capital, 
leaving  nothing  for  profit ;  and,  therefore,  if  the  only  cause  of 
distress  be  the  alteration  in  the  value  of  the  currency,  4  millions 
must  have  constituted  all  the  net  income  both  of  landlord^  and 
tenants  before  such  alteration — a  proposition  which  no  man  would 
venture  to  sustain.  To  what  other  cause,  then,  is  the  distress  to 
be  attributed  ?  To  what  other  cause  are  we  to  ascribe  the  extreme 
depression  of  all  agricultural  produce?  The  answer  is,  I  think, 
plain,  intelligible,  and  satisfactory ; — to  the  general  prevalence  of 
abundance,  arising  from  good  crops,  and  large  importations  from 
Ireland. 

This  fall  has  been  increased  by  the  operation  of  the  present  corn 
laws,  which  have  had  the  effect  of  driving  capital  to  the  cultivation 
of  poor  lands,  and  of  making  the  price  of  corn  in  average  years  in 
this  country  greatly  to  exceed  the  price  in  other  countries.  The 
price,  under  such  circumstances,  must  be  high,  but  in  proportion 
as  it  is  raised,  so  is  it  liable  to  a  greater  fall ;  for,  in  abundant 
seasons,  the  whole  increased  quantity  gluts  our  own  market,  and  if 
it  be  above  the  quantity  which  we  can  consume,  rapidly  depresses 
the  price,  without  our  having  any  vent  from  exportation,  till  the 
fall  of  price  is  ruinous  to  the  interests  of  fanners,  who  are  never  so 
secure  as  when  the  resource  of  exportation  can  be  easily  had 
recourse  to. 

To  obviate,  as  far  as  is  practicable,  this  enormous  evil,  all  undue 
protection  to  agriculture  should  be  gradually  withdrawn.  The 
policy  which  we  ought  at  this  moment  of  distress  to  adopt,  is  to 
give  the  monopoly  of  the  home  market  to  the  British  grower  till 
corn  reaches  70s.  per  quarter.  When  it  has  reached  70s.,  all  fixed 
price  and  system  of  averages  should  be  got  rid  of,  and  a  duty  of 
2 Os.  per  quarter  on  the  importation  of  wheat,  and  other  grain  in 
proportion,  might  be  imposed. 

This  change  would  do  but  little  in  protecting  us  from  the  effects 
of  abundant  crops,  but  it  would  be  greatly  beneficial  in  preventing 
an  unlimited  importation  of  corn  rvhen  the  ports  were  opened. 
Under  the  payment  of  a  fixed  duty,  corn  -would  be  imported  only 
in  such  quantities  as  it  might  be  required,  and  as  no  one  would 
fear  the  shutting  of  the  ports,  no  one  would  hurry  corn  to  this 
country  till  we  really  wanted  it.  Against  the  effects  of  glut, 
caused  by  an  unlimited  supply  from  abroad,  we  should  be  then 
amply  protected. 


i 


H 


I 


*  The  whole  amount  of  taxes  paid  to  the  public  creditor  and  sinking  fund,  is 
•16  millions  ;  suppose  the  other  fixed  charges  to  be  4  millions,  then  the  whole  taxation 
on  which  the  altered  value  of  money  has  operated,  is  40  millions.  I  estimate  the 
increase  10  per  cent.,  or  4  millions,  which  falls  on  all  classes — landlords,  merchants, 
manufacturers,  labourers,  and,  though  last  not  least,  stockholders. 


ON  PROTECTION  TO  AGRICULTURE. 


493 


This  measure,  however,  although  a  great  improvement  on  the 
present  corn  law,  would  be  very  deficient  if  we  proceeded  no 
farther.  To  establish  measures  which  should  at  once  drive  capital 
from  the  land  would,  under  the  present  circumstances  of  the 
country,  be  rash  and  hazardous,  and,  therefore,  I  should  propose 
that  the  duty  of  20s.  should  every  year  be  reduced  Is.  until  it 
reached  10s.  We  should  also  allow  a  drawback  of  7s.  per  quarter 
on  the  exportation  of  wheat;  and  these  should  be  considered  as 
permanent  measures. 

A  duty  of  10s.  per  quarter  on  importation,  to  which  I  wish  to 
approach,  is,  I  am  sure,  rather  too  high  as  a  countervailing  duty 
for  the  peculiar  taxes  which  are  imposed  on  the  corn  grower,  over 
and  above  those  which  are  imposed  on  the  other  classes  of  producers 
in  the  country  ;  but  I  would  rather  err  on  the  side  of  a  liberal 
allowance  than  of  a  scanty  one,  and  it  is  for  this  reason  that  I  do 
not  propose  to  allow  a  drawback  quite  equal  to  the  duty.  As  far 
as  the  producer  of  corn  was  concerned,  when  the  duty  had  fallen 
to  10s.,  the  trade  would  to  him  have  all  the  advantages  of  a  free 
trade,  within  the  trilling  amount  of  3s.  per  quarter.  Whenever 
his  crops  were  abundant,  he  could  be  relieved  by  exportation,  after 
a  very  moderate  fall  of  price,  unless,  indeed,  the  abundance  and 
fall  were  general  in  all  countries  ;  but,  at  any  rate,  the  price  of  his 
corn  would  be  nearer  the  general  rate  of  prices  of  the  rest  of  the 
world  by  20s.  or  25s.  than  it  is  under  the  existing  regulations,  and 
this  alteration  would  be  invaluable  to  him. 

Before  1  conclude,  it  will  be  proper  to  notice  an  objection  which 
is  frequently  made  against  freedom  of  trade  in  corn,  viz.  the 
dependence  in  which  it  would  place  us  for  an  essential  article  of 
subsistence  on  foreign  countries.  This  objection  is  founded  on  the 
supposition  that  we  should  be  importers  of  a  considerable  portion 
of  the  quantity  which  we  annually  consume. 

In  the  first  place,  I  differ  with  those  who  think  that  the  quantity 
which  we  should  import  would  be  immense ;  and,  in  the  second,  if 
it  were  as  large  as  the  objection  requires,  I  can  see  no  danger  as 
likely  to  arise  from  it. 

From  all  the  evidence  given  to  the  Agricultural  Committee,  it 
appears  that  no  very  great  quantity  could  be  obtained  from  abroad, 
without  causing  a  considerable  increase  in  the  remunerating  price 
of  corn  in  foreign  countries.  In  proportion  as  the  quantity  required 
came  from  the  interior  of  Poland  and  Germany,  the  cost  would  be 
greatly  increased  by  the  expenses  of  land  carriage.  To  raise  a 
larger  supply,  too,  those  countries  would  be  obliged  to  have  recourse 
to  an  inferior  quality  of  land,  and,  as  it  is  the  cost  of  raising  corn 
on  the  worst  soils  in  cultivation,  requiring  the  heaviest  charges, 
which  regulates  the  price  of  all  the  corn  of  a  country,  there  could 
not  be  a  great  additional  quantity  produced  without  a  rise  in  the 
price  necessary  to  remunerate  the  foreign  grower.  In  proportion 
as  the  price  rose  abroad,  it  would  become  advantageous  to  cultivate 


494 


ON  PROTECTION  TO  AGRICULTURE. 


poorer  lands  at  home  ;  and  therefore,  here  is  every  probability 
that,  under  the  freest  state  of  demand,  we  should  not  be  importers 
of  any  very  large  quantity. 

But  suppose  the  case  to  be  otherwise,  what  danger  should  we 
incur  from  our  dependence,  as  it  is  called,  on  foreign  countries  for 
a  considerable  portion  of  our  food  ?  If  our  demand  was  constant 
and  uniform,  which,  under  such  a  system,  it  would  undoubtedly  be, 
a  considerable  quantity  of  corn  must  be  grown  abroad  expressly  for 
our  market.  It  would  be  more  the  interest,  if  possible,  of  the 
countries  so  growing  corn  for  our  use,  to  oppose  no  obstacles  to  its 
reaching  us,  than  it  would  be  ours  to  receive  it. 

Let  us  look  attentively  at  what  is  passing  in  this  country  before 
our  eyes.  Do  we  not  see  the  effects  of  a  small  excess  of  quantity 
on  the  price  of  corn  ?  What  would  be  the  glut  if  England  habitually 
raised  a  considerable  additional  quantity  for  foreign  consumption  r 
Should  we  be  willing  to  expose  our  farmers  and  landlords  to  the 
ruin  which  would  overwhelm  them  if  we  voluntarily  deprived  them 
of  the  foreign  market,  even  in  case  of  war?  I  am  sure  we  should 
not.  Whatever  allowance  we  may  make  for  the  feelings  of  enmity, 
and  for  the  desire  which  we  might  have  to  inflict  suffering  on  our 
foe  by  depriving  him  of  part  of  his  usual  supply  of  food,  I  am  sure 
that  at  such  a  price  as  it  must  be  inflicted,  in  the  case  which  I  am 
supposing,  we  should  forbear  to  exercise  such  a  power.  If  such 
would  be  our  policy,  so  would  it  also  be  that  of  other  countries  in 
the  same  circumstances ;  and  I  am  fully  persuaded  that  we  should 
never  suffer  from  being  deprived  of  the  quantity  of  food  for  which 
we  uniformly  depended  on  importation. 

All  our  reasoning  on  this  subject  leads  to  the  same  conclusion, 
that  we  should,  with  as  little  delay  as  possible,  consistently  with  a 
due  regal’d  to  temporary  interests,  establish  what  may  be  called  a 
substantially  free  trade  in  corn.  The  interests  of  the  farmer,  con¬ 
sumer,  and  capitalist,  would  all  be  promoted  by  such  a  measure  ; 
and,  as  far  as  steady  prices  and  the  regular  receipt  of  rents  is  more 
advantageous  to  the  landlord  than  fluctuating  prices  and  irregular 
receipt  of  rents,  I  am  sure  his  interest  well  understood  would  lead 
to  the  same  conclusion ;  although  I  am  willing  to  admit,  that  the 
average  money  rents,  to  which  he  would  be  entitled  if  his  tenants 
could  fulfil  their  contracts,  would  be  higher  under  a  system  of 
restricted  trade. 


APPENDIX 


A. 


REPRESENTATION,  AGREED  UPON  THE  20TII  DAT  OF  MAY  1819,  BY  THE  DIRECTORS  OF 
THE  BANK  OF  ENGLAND,  AND  LAID  BEFORE  THE  CHANCELLOR  OF  THE  EXCHEQUER. 


Ordered  by  the  House  of  Commons  to  be  Printed,  21st  May  1819. 


At  a  Court  of  Directors  at  the  Bank,  on  Thursday ,  20th  May  1819. 

The  Directors  of  the  Bank  of  England,  having  taken  into  their  most  serious  consi¬ 
deration  the  Reports  of  the  Secret  Committees  of  the  two  Houses  of  Parliament, 
appointed  to  inquire  into  the  state  of  the  Bank  of  England  with  reference  to  the 
expediency  of  the  resumption  of  cash  payments  at  the  period  now  fixed,  have  thought 
it  their  duty  to  lay  before  His  Majesty’s  Ministers,  as  early  as  possible,  their  sentiments 
with  regard  to  the  measures  suggested  by  these  Committees,  for  the  approbation  of 
Parliament. 

In  the  first  place,  it  appears  that,  in  the  view  of  the  Committees,  the  measure  of  the 
Bank  recommencing  cash  payments  on  the  5th  of  July  next,  the  time  prescribed  by 
the  existing  law,  “  is  utterly  impracticable,  and  would  be  entirely  inefficient,  if  not 
ruinous.” 

Secondly,  It  appears  that  the  two  Committees  have  come  to  their  conclusion  at  a 
period  when  the  outstanding  notes  of  the  Bank  of  England  do  not  much  exceed 
25,000,000/.;  when  the  price  of  gold  is  about  4/.  Is.  per  ounce;  and  when  there  is 
great  distress  from  the  stagnation  of  commerce,  and  the  fall  of  prices  of  imported 
articles. 

It  must  be  obvious  to  His  Majesty’s  Ministers,  that  as  long  as  such  a  state  of  things 
shall  last,  or  one  in  any  degree  similar,  without  either  considerable  improvement  on 
one  side,  or  growing  worse  on  the  other,  the  Bank,  acting  as  it  does  at  present,  and 
keeping  its  issues  nearly  at  the  present  level,  could  not  venture  to  return  to  casli 
payments  with  any  probability  of  benefit  to  the  public,  or  safety  to  the  establishment. 

The  two  Committees  of  Parliament,  apparently  actuated  by  this  consideration,  have 
advised  that  the  Bank  shall  not  open  payments  in  coin  for  a  period  of  four  years,  but 
shall  be  obliged,  from  the  1st  of  Slay  1821,  to  discharge  their  notes  in  standard  gold 
bullion,  at  Mint  price,  when  demanded  in  sums  not  amounting  to  less  than  thirty 
ounces.  And,  as  it  appears  to  the  Committees  expedient  that  this  return  to  pay¬ 
ments  at  Mint  price  should  be  made  gradually,  they  propose  that,  on  the  first  day 
of  February  next,  the  Bank  should  pay  their  notes  in  bullion,  if  demanded  in  sums 
not  less  than  sixty  ounces,  at  the  rate  of  4  /.  Is.  an  ounce,  and  from  the  1st  of  October 
1820  to  the  1st  of  May  following,  at  3l.  19s.  6d.  an  ounce. 

If  the  Directors  of  the  Bank  have  a  true  comprehension  of  the  views  of  the  Com¬ 
mittees  in  submitting  this  scheme  to  Parliament,  they  are  obliged  to  infer,  that  the 
object  of  the  Committees  is,  to  secure,  at  every  hazard,  and  under  every  possible  varia¬ 
tion  of  circumstances,  the  return  of  payments  in  gold,  at  Mint  price,  for  bank  notes, 


406 


APPENDIX  TO  PROTECTION  TO  AGRICULTURE  . 


at  the  expiration  of  two  years ;  and  that  this  measure  is  so  to  be  managed,  that  the 
Mint  price  denominations  shall  ever  afterwards  be  preserved,  leaving  the  market  or 
exchange  price  of  gold  to  be  controlled  by  the  Bank,  solely  by  the  amount  of  their 
issue  of  notes. 

It  further  appears  to  the  Directors,  with  regard  to  the  final  execution  of  this  plan, 
and  the  payment  of  bank  notes  in  gold  at  Mint  price,  that  discretionary  power  is  to  he 
taken  away  from  the  Bank ;  and  that  it  is  merely  to  regulate  its  issues,  and  make 
purchases  of  gold,  so  as  to  be  enabled  to  answer  all  possible  demands,  whenever  its 
treasury  shall  he  again  open  for  the  payment  of  its  notes. 

Under  these  impressions,  the  Directors  of  the  Bank  think  it  right  to  observe  to  His 
Majesty’s  Ministers,  that  being  engaged  to  pay  on  demand  their  notes  in  statutable  coin, 
at  the  Mint  price  of  3l.  17s.  10jd.  an  ounce,  they  ought  to  be  the  last  persons  who 
should  object  to  any  measure  calculated  to  effect  that  end  ;  but  as  it  is  incumbent  on 
them  to  consider  the  effect  of  any  measure  to  be  adopted,  as  operating  upon  the  general 
issue  of  their  notes,  by  which  all  the  private  banks  are  regulated,  and  of  which  the  whole 
currency,  exclusive  of  the  notes  of  private  bankers,  is  composed,  they  feel  themselves 
obliged,  by  the  new  situation  in  which  they  have  been  placed  by  the  restriction  act  of 
1797,  to  bear  in  mind  not  less  their  duties  to  the  community  at  large,  whose  interests, 
in  a  pecuniary  and  commercial  relation,  have  in  a  great  degree  been  confided  to  their 
discretion. 

The  Directors  being  thus  obliged  to  extend  their  views,  and  embrace  the  interests 
of  the  whole  community  in  their  consideration  of  this  measure,  cannot  but  feel  a 
repugnance,  however  involuntary,  to  pledge  themselves  in  approbation  of  a  system 
which,  in  their  opinion,  in  all  its  great  tendencies  and  operations,  concerns  the  country 
in  general  more  than  the  immediate  interests  of  the  Bank  alone. 

It  is  not  certainly  a  part  of  the  regular  duty  of  the  Bank,  under  its  original  institu¬ 
tion,  to  enter  into  the  general  views  of  policy  by  which  this  great  empire  is  to  be 
governed  in  all  its  commercial  and  pecuniary  transactions,  which  exclusively  belong 
to  the  administration,  to  Parliament,  and  to  the  community  at  large  ;  nor  is  it  the 
province  of  the  Bank  to  expound  the  principles  by  which  these  views  ought  to  be 
regulated.  Its  peculiar  and  appropriate  duty  is  the  management  of  the  concerns  of 
the  banking  establishment,  as  connected  with  the  payment  of  the  interest  of  the  national 
debt,  the  lodgments  consigned  to  its  care,  and  the  ordinary  advances  it  has  been  accus¬ 
tomed  to  make  to  Government. 

But  when  the  Directors  are  now  to  be  called  upon,  in  the  new  situation  in  which 
they  are  placed  by  the  restriction  act,  to  procure  a  fund  for  supporting  the  whole 
national  currency,  either  in  bullion  or  in  coin,  and  when  it  is  proposed  that  they  should 
effect  this  measure  within  a  given  period,  by  regulating  the  market  price  of  gold  by  a 
limitation  of  the  amount  of  the  issue  of  bank  notes,  with  whatever  distress  such  limi¬ 
tation  may  be  attended  to  individuals  or  the  community  at  large,  they  feel  it  their 
bounden  and  imperious  duty  to  state  their  sentiments  thus  explicitly,  in  the  first 
instance  to  his  Majesty’s  Ministers,  on  this  subject,  that  a  tacit  consent  and  concurrence 
at  this  juncture  may  not,  at  some  future  period,  be  construed  into  a  previous  implied 
sanction  on  their  part,  of  a  system  which  they  cannot  but  consider  fraught  with  very 
great  uncertainty  and  risk. 

It  is  impossible  for  them  to  decide  beforehand  what  shall  be  the  course  of  events  for 
the  next  two,  much  less  for  the  next  four,  years ;  they  have  no  right  to  hazard  a 
flattering  conjecture,  for  which  they  have  not  real  grounds,  in  which  they  may  be 
disappointed,  and  for  which  they  may  be  considered  responsible.  They  cannot  venture 
to  advise  an  unrelenting  continuance  of  pecuniary  pressures  upon  the  commercial 
world,  of  which  it  is  impossible  for  them  either  to  foresee  or  estimate  the  con¬ 
sequences. 

The  Directors  have  already  submitted  to  the  House  of  Lords  the  expediency  of  the 
Bank  paying  its  notes  in  bullion  at  the  market  price  of  the  day,  with  a  view  of  seeing 
how  far  favourable  commercial  balances  may  operate  in  restoring  the  former  order  of 
things,  of  which  they  might  take  advantage :  and,  with  a  similar  view,  they  have  pro¬ 
posed  that  Government  should  repay  the  Bank  a  considerable  part  of  the  sums  that 
have  been  advanced  upon  exchequer  bills. 

These  two  measures  would  allow  time  for  a  correct  judgment  to  be  formed  upon  the 
state  of  the  bullion  market,  and  upon  the  real  result  of  those  changes  which  the  late 
war  may  have  produced  in  all  its  consequences,  of  increased  public  debt,  increased 
taxes,  increased  prices,  and  altered  relations  as  to  interest,  capital,  and  commercial 
dealings  with  the  Continent :  and  how  far  the  alterations  thus  produced  are  temporary 
or  permanent ;  and  to  what  extent,  and  in  what  degree,  they  operate. 


APPENDIX  TO  PROTECTION  TO  AGRICULTURE. 


497 


It  was  the  design  of  the  Directors,  in  pursuance  of  the  before-mentioned  two  mea¬ 
sures,  to  take  advantage  of  every  circumstance  which  could  enable  the  Bank  to  extend 
its  purchases  of  bullion,  as  far  as  a  legitimate  consideration  of  the  ordinary  wants  of 
the  nation  for  a  sufficient  currency  could  possibly  warrant.  Beyond  this  point,  they 
do  not  consider  themselves  justified  in  going,  upon  any  opinion,  conjecture,  or  specu¬ 
lation,  merely  their  own ;  and  when  a  sv-tem  is  recommended  which  seems  to  take 
away  from  the  Bank  anything  like  a  discretionary  consideration  of  the  necessities  and 
distresses  of  the  commercial  world,  if  the  Directors  withhold  their  previous  consent, 
it  is  not  from  a  want  of  deference  to  his  Majesty’s  Government,  or  to  the  opinions  of 
the  Committees  of  the  two  Houses  of  Parliament,  but  solely  from  a  serious  feeling  that 
they  have  no  right  whatever  to  invest  themselves,  of  their  own  accord,  with  the  respon¬ 
sibility  of  countenancing  a  measure  in  which  the  whole  community  is  so  deeply 
involved,  and  possibly  to  compromise  the  universal  interests  of  the  empire,  in  all  the 
relations  of  agriculture,  manufacture,  commerce,  and  revenue,  by  a  seeming  acqui¬ 
escence  or  declared  approbation  on  the  part  of  the  Directors  of  the  Bank  of  England. 

The  consideration  of  these  great  questions,  and  of  the  degree  in  which  all  these 
leading  and  commanding  interests  may  be  affected  by  the  measure  proposed,  rests 
with  the  legislature ;  and  it  is  for  them,  after  solemn  deliberation,  and  not  for  the 
Bank,  to  determine  and  decide  upon  the  course  to  be  adopted. 

Whatever  reflections  may  have  from  time  to  time  been  cast  upon  the  Bank,  what¬ 
ever  invidious  representations  of  its  conduct  may  have  been  made,  the  cautious 
conduct  it  adopted,  in  so  measuring  the  amount  of  currency  as  to  make  it  adequate  to 
the  wants  both  of  the  nation  and  of  the  Government,  at  the  same  time  keeping  it 
within  reasonable  bounds  when  compared  with  what  existed  before  the  war,  as  is 
shown  in  the  Lords’  reports,  pages  10,  11,  12,  and  13  ;  the  recent  effort  to  return  to  a 
svstem  of  cash  payments,  which  commenced  with  the  fairest  prospects  (but  which  was 
afterwards  frustrated  by  events  that  could  not  he  foreseen  nor  controlled  by  the  Bankj, 
are  of  themselves  a  sufficient  refutation  of  all  the  obloquy  which  has  been  so  unde¬ 
servedly  heaped  upon  the  establishment. 

The  Directors  of  the  Bank  of  England,  in  submitting  these  considerations  to  his 
Majesty’s  Ministers,  request  that  they  may  be  allowed  to  assure  them,  that  it  is  always 
their  anxious  desire,  as  far  as  d  spends  upon  them,  to  aid,  by  every  consistent  means,  ihe 
measures  of  the  legislature  for  furthering  the  prosperity  of  the  empire. 

Robert  Best,  .Sec. 


CORN  ARRIVED  IN  TIIE  TORT  OF  LONDON  FROM  TORTS  IN  GREAT  BRITAIN  AND  IRELAND, 


498  ON  PROTECTION  TO  AGRICULTURE 


From  1st  November  1818  to  1st  March  1819, .  65,804  107,764  137,272 

From  1st  November  1819  to  1st  March  1820, .  100,582  117,144  164,017 

From  1st  November  1820  to  1st  March  1821, .  106,465  96,703  134,586 

From  1st  November  1821  to  1st  March  1822 .  170,621  96,127  216,870 


PLAN 


FOR  THE  ESTABLISHMENT  OF 


A  NATIONAL  BANK. 


LONDON. 


1824. 


PREFACE. 


It  was  the  intention  ot‘  Mr  Ricardo,  on  retiring  into  the  country 
after  the  last  session  of  Parliament,  to  employ  part  of  his  leisure  in 
committing  to  paper,  with  a  view  to  publication,  a  scheme  by  which, 
in  his  opinion,  the  profit  derived  from  the  supply  of  Paper  Currency 
might  be  afforded  to  the  public  without  any  diminution  of  security 
against  the  inconveniences  to  which  such  a  currency  is  liable.  It 
was  known,  previous  to  his  last  illness,  that  he  had  carried  his  design 
into  execution  ;  and  the  following  pages  were  found  among  his 
papers  after  his  decease.  It  is  not  known  that  Mr  Ricardo  thought 
any  alteration  or  addition  necessary,  unless  it  be  in  one  point. 
Having  communicated  his  MS.  to  a  member  of  his  own  family,  who 
was  near  him  at  the  time  of  its  completion  ;  and  it  being  suggested 
to  him  that  difficulty  might  be  experienced  in  the  country,  as  the 
notes  of  one  district  were  not  to  be  payable  in  another,  in  obtain¬ 
ing  currency  for  the  purposes  of  travelling ;  he  admitted  that 
something  to  obviate  this  inconvenience  might  be  required,  but 
thought  that  some  very  simple  arrangement  would  answer  the  en  1 . 
It  does  not  appear  that  he  had  committed  to  writing  any  expedient 
which  might  have  occurred  to  him  for  that  purpose  ;  and  his  friends 
have  deemed  it  most  proper  to  commit  his  manuscript  to  the  press, 
v  ith  this  explanation,  in  the  state  precisely  in  which  it  was  found. 


PLAN 


FOR 

THE  ESTABLISHMENT  OF  A  NATIONAL  BANK. 


The  Bank  of  England  performs  two  operations  of  banking,  which 
are  quite  distinct,  and  have  no  necessary  connexion  with  each 
other:  it  issues  a  paper  currency  as  a  substitute  for  a  metallic 
one ;  and  it  advances  money  in  the  way  of  loan,  to  merchants  and 
others. 

That  these  two  operations  of  banking  have  no  necessary  connex¬ 
ion,  will  appear  obvious  from  this, — that  they  might  be  carried  on 
by  two  separate  bodies,  without  the  slightest  loss  of  advantage, 
either  to  the  country,  or  to  the  merchants  who  receive  accommo¬ 
dation  from  such  loans. 

Suppose  the  privilege  of  issuing  paper  money  were  taken  away 
from  the  Bank,  and  were  in  future  to  be  exercised  by  the  State 
only,  subject  to  the  same  regulation  to  which  the  Bank  is  now 
liable,  of  paying  its  notes,  on  demand,  in  specie  ;  in  what  way 
would  the  national  wealth  be  in  the  least  impaired?  \Ye  should 
then,  as  now,  carry  on  all  the  traffic  and  commerce  of  the  country, 
with  the  cheap  medium,  paper  money,  instead  of  the  dear  medium, 
metallic  money  ;  and  all  the  advantages  which  now  flow  from 
making  this  part  of  the  national  capital  productive,  in  the  form  of 
raw  material,  food,  clothing,  machinery,  and  implements,  instead  of 
retaining  it  useless,  in  the  form  of  metallic  money,  would  be  equally 
secured. 

The  public,  or  the  Government  on  behalf  of  the  public,  is  indebted 
to  the  Bank  in  a  sum  of  money  larger  than  the  whole  amount  of 
bank  notes  in  circulation  ;  for  the  Government  not  only  owes  the 
Bank  15  millions,  its  original  capital,  which  is  lent  at  3  per 
cent,  interest,  but  also  many  more  millions,  which  are  advanced  on 
exchequer  bills,  on  half-pa y  and  pension  annuities,  and  on  other 
securities.  It  is  evident,  therefore,  that  if  the  Government  itself 
were  to  be  the  sole  issuer  of  paper  money,  instead  of  borrowing  it 
of  the  Bank,  the  only  difference  would  be  with  respect  to  the 
interest  : — the  Bank  would  no  longer  receive  interest,  and  the 
Government  would  no  longer  pay  it :  but  all  other  classes  in  the 
community  would  be  exactly  in  the  same  position  in  which  they 
now  stand.  It  is  evident,  too,  that  there  would  be  just  as  much 
money  in  circulation ;  for  it  could  make  no  difference,  in  that 
respect,  whether  the  16  millions  of  paper  money  now  circulating 


504 


FLAN  FOR  THE  ESTABLISHMENT  OF 


in  London,  were  issued  by  Government,  or  by  a  banking  cor¬ 
poration.  The  merchants  could  suffer  no  inconvenience  from  any 
want  of  facility  in  getting  the  usual  advances  made  to  them  in  the 
way  of  discount  or  in  any  other  manner ;  for,  first,  the  amount  of 
those  advances  must  essentially  depend  upon  the  amount  of  money 
in  circulation,  and  that  would  be  just  the  same  as  before  :  and, 
secondly,  of  the  amount  in  circulation,  the  Bank  would  have  pre¬ 
cisely  the  same  proportion,  neither  less  nor  more,  to  lend  to  the 
merchants. 

If  it  be  true,  as  I  think  I  have  clearly  proved,  that  the  advances 
made  by  the  Bank  to  the  Government  exceed  the  whole  amount  of 
the  notes  of  the  Bank  in  circulation,  it  is  evident  that  part  of  its 
advances  to  Government,  as  well  as  the  whole  of  its  loans  to  other 
persons,  must  be  made  from  other  funds,  possessed,  or  at  the  disposal 
of  the  Bank,  and  which  it  would  continue  to  possess  after  Govern¬ 
ment  had  discharged  its  debt  to  it,  and  after  all  its  notes  were 
withdrawn  from  circulation.  Let  it  not  then  be  said  that  the 
Bank  charter,  as  far  as  regards  the  issuing  of  paper  money,  ought 
to  be  renewed,  for  this  reason,  that  if  it  be  not,  the  merchants  will 
suffer  inconvenience,  from  being  deprived  of  the  usual  facilities  of 
borrowing ;  as  I  trust  I  have  shown  that  their  means  of  borrowing 
would  be  just  as  ample  as  before. 

It  may,  however,  be  said  that,  if  the  Bank  were  deprived  of  that 
part  of  its  business  which  consists  in  issuing  paper  money,  it  would 
have  no  motive  to  continue  a  joint  stock  company,  and  would  agree 
on  a  dissolution  of  its  partnership.  I  believe  no  such  thing;  it 
would  still  have  profitable  means  of  employing  its  own  funds ;  but 
suppose  I  am  wrong,  and  that  the  company  were  dissolved,  what 
inconvenience  would  commerce  sustain  from  it  ?  If  the  joint  stock 
of  the  company  be  managed  by  a  few  directors,  chosen  by  the 
general  body  of  proprietors,  or,  if  it  be  divided  amongst  the  pro¬ 
prietors  themselves,  and  each  share  be  managed  by  the  individual 
to  whom  it  belongs,  will  that  make  any  difference  in  its  real 
amount,  or  in  the  efficacy  with  which  it  may  be  employed  for 
commercial  purposes?  It  is  probable  that  in  no  case  would  it 
be  managed  by  the  individual  proprietors,  but  that  it  would  be 
collected  in  a  mass  or  masses,  and  managed  with  much  more 
economy  and  skill  than  it  is  now  managed  by  the  Bank.  A  great 
deal  too  much  stress  has  always  been  laid  on  the  benefits  which 
commerce  derives  from  the  accommodation  afforded  to  merchants 
by  the  Bank.  I  believe  it  to  be  quite  insignificant  compared  with 
that  which  is  afforded  by  the  private  funds  of  individuals.  We 
know  that  at  the  present  moment  the  advances  by  the  Bank  to 
merchants,  on  discount,  are  of  a  very  trifling  amount ;  and  we  have 
abundant  evidence  to  prove  that  at  no  time  have  they  been  great. 
The  whole  fund  at  the  disposal  of  the  Bank  for  the  last  thirty 
years  is  well  known.  It  consisted  of  its  own  capital  and  savings — ■ 
of  the  amount  of  deposits  left  with  it  by  Government  and  by 


A  NATIONAL  BANK. 


505 


individuals,  who  employed  it  as  a  banker.  From  this  aggregate 
fund  must  be  deducted  the  amount  of  cash  and  bullion  in  the 
coffers  of  the  Bank,  the  amount  of  advances  to  the  holders  of 
receipts  for  the  loans  contracted  for  during  each  year,  and  the 
amount  of  advances  to  Government  in  every  way.  After  making 
these  deductions,  the  remainder  only  could  have  been  devoted  to 
commercial  objects,  and  if  it  were  ascertained,  would,  I  am  sure,  be 
comparatively  of  a  small  amount. 

From  papers  laid  before  Parliament  in  1797,  in  which  the  Bank 
gave  a  number  as  unit,  and  a  scale  of  its  discounts  for  different 
years,  it  was  calculated  by  some  ingenious  individual,  after  com¬ 
paring  this  scale  with  other  documents  also  laid  before  Parliament, 
that  the  amount  of  money  advanced  in  the  way  of  discount  to  the 
merchants,  for  a  period  of  three  years  and  a  half  previous  to  1797, 
varied  from  2  millions  to  3,700,00(B.  These  are  trifling  amounts 
in  such  a  country  as  this,  and  must  bear  a  small  proportion  to  the 
sum  lent  by  individuals  for  similar  purposes.  In  1797,  the  advances 
to  Government  alone  by  the  Bank,  exclusive  of  its  capital,  which 
was  also  lent  to  Government,  were  more  than  three  times  the 
amount  of  the  advances  to  the  whole  body  of  merchants. 

A  Committee  of  the  House  of  Commons  was  appointed  last 
session  of  Parliament  to  inquire  into  the  law  of  pledges,  and  into 
the  relation  of  consignors  of  goods  from  abroad  to  consignees. 
This  committee  called  before  it  Mr  Richardson,  of  the  house  of 
Richardson,  Overend  and  Co.,  eminent  discount  brokers  in  the  city. 
This  gentleman  was  asked — 

“  Q.  Are  you  not  in  the  habit  occasionally  of  discounting  to  a 
large  extent  bills  of  brokers  and  other  persons,  given  upon  the 
security  of  goods  deposited  in  their  hands  ? 

“  A.  Very  large. 

“  Q.  Have  you  not  carried  on  the  business  of  a  bill  broker  and 
money  agent  to  a  very  large  extent,  much  beyond  that  of  any  other 
individual  in  this  town  ? 

“  A.  I  should  think  very  much  beyond. 

“  Q.  To  the  extent  of  some  millions  annually  ? 

u  A.  A  great  many ;  about  20  millions  annually, — sometimes 
more.” 

The  evidence  of  Mr  Richardson  satisfactorily  proves,  I  think, 
the  extent  of  transactions  of  this  kind,  in  which  the  Bank  has  no 
kind  of  concern.  Can  any  one  doubt  that,  if  the  Bank  were  to 
break  up  its  establishment,  and  divide  its  funds  among  the  individual 
proprietors,  the  business  of  Mr  Richardson,  and  of  others  who  are 
in  the  same  line,  would  considerably  increase  ?  On  the  one  hand, 
they  would  have  more  applications  made  to  them  for  money  on 
discount  •  on  the  other,  many  who  would  have  money  to  dispose  of 
would  apply  to  them  to  obtain  employment  for  it.  The  same 
amount  of  money,  and  no  more,  would  be  employed  in  this  branch 
of  business  ;  and  if  not  employed  by  the  Bank,  or  by  the  individual 


506 


PLAN  FOR  THE  ESTABLISHMENT  OF 


proprietors,  if  they  had  the  management  of  their  own  funds,  it 
would  inevitably  find  its  way,  either  by  a  direct  or  circuitous 
channel,  to  Mr  Richardson,  or  to  some  other  money  agent,  to  be 
employed  b}7  him  in  promoting  the  commerce  and  upholding  the 
trade  of  the  country ;  for  in  no  other  way  could  these  funds  be 
made  so  productive  to  the  parties  to  whom  they  would  belong. 

If  the  view  which  I  have  taken  of  this  subject  be  a  correct  one, 
it  appears  that  the  commerce  of  the  country  would  not  be  in  the 
least  impeded  by  depriving  the  Bank  of  England  of  the  power  of 
issuing  paper  money,  provided  an  amount  of  such  money,  equal  to 
the  Bank  circulation,  was  issued  by  Government;  and  that  the  sole 
effect  of  depriving  the  Bank  of  this  privilege  would  be  to  transfer 
the  profit  which  accrues  from  the  interest  of  the  money  so  issued 
from  the  Bank  to  Government. 

There  remains,  however,  one  other  objection  to  which  the  reader’s 
attention  is  requested. 

It  is  said  that  Government  could  not  be  safely  entrusted  with 
the  power  of  issuing  paper  money  ;  that  it  would  most  certainly 
abuse  it ;  and  that,  on  any  occasion  when  it  was  pressed  for  money 
to  carry  on  a  war,  it  would  cease  to  pay  coin,  on  demand,  for  its 
notes ;  and  from  that  moment  the  currency  would  become  a  forced 
Government  paper.  There  would,  I  confess,  be  great  danger  of 
this,  if  Government — that  is  to  say,  the  Ministers — were  themselves 
to  be  entrusted  with  the  power  of  issuing  paper  money.  But  I 
propose  to  place  this  trust  in  the  hands  of  Commissioners,  not 
removable  from  their  official  situation  but  by  a  vote  of  one  or  both 
Houses  of  Parliament.  I  propose  also  to  prevent  all  intercourse 
between  these  Commissioners  and  Ministers,  by  forbidding  every 
species  of  money  transaction  between  them.  The  Commissioners 
should  never,  on  any  pretence,  lend  money  to  Government,  nor  be 
in  the  slightest  degree  under  its  control  or  influence.  Over  Com¬ 
missioners  so  entirely  independent  of  them,  the  Ministers  would 
iiave  much  less  power  than  they  now  possess  over  the  Bank 
Directors.  Experience  shows  how  little  this  latter  body  have  been 
able  to  withstand  the  cajolings  of  Ministers  ;  and  how  frequently 
they  have  been  induced  to  increase  their  advances  on  exchequer 
bills  and  treasury  bills,  at  the  very  moment  they  were  themselves 
declaring  that  it  would  be  attended  with  the  greatest  risk  to  the 
stability  of  their  establishment,  and  to  the  public  interest.  From 
a  perusal  of  the  correspondence  between  Government  and  the  Bank, 
previous  to  the  stoppage  of  Bank  payments,  in  1797,  it  will  be 
seen,  that  the  Bank  attributes  the  necessity  of  that  measure 
(erroneously  in  this  instance,  I  think),  to  the  frequent  and  urgent 
demands  for  an  increase  of  advances  on  the  part  of  Government. 
I  ask,  then,  whether  the  country  would  not  possess  a  greater  security 
against  all  such  influence,  over  the  minds  of  the  issuers  of  paper,  as 
would  induce  them  to  swerve  from  the  strict  line  of  their  duty,  it 
the  paper  money  of  the  country  were  issued  by  Commissioners,  01. 


A  NATIONAL  BANK. 


.507 


the  plan  I  have  proposed,  rather  than  by  the  Bank  of  England,  as 
at  present  constituted  ?  If  Government  wanted  money,  it  should 
be  obliged  to  raise  it  in  the  legitimate  way  ;  by  taxing  the  people ; 
by  the  issue  and  sale  of  exchequer  bills,  by  funded  loans,  or  by 
borrowing  from  any  of  the  numerous  banks  which  might  exist  in 
the  country;  but  in  no  case  should  it  be  allowed  to  borrow  from 
those  who  have  the  power  of  creating  money. 

If  the  funds  of  the  Commissioners  became  so  ample  as  to  leave 
them  a  surplus  which  might  be  advantageously  disposed  of,  let  them 
go  into  the  market  and  purchase  publicly  Government  securities 
with  it.  If  on  the  contrary  it  should  become  necessary  for  them 
to  contract  their  issues,  without  diminishing  their  stock  of  gold,  let 
them  sell  their  securities,  in  the  same  way,  in  the  open  market. 
By  this  regulation  a  trifling  sacrifice  would  be  made,  amounting  to 
the  turn  of  the  market,  which  may  be  supposed  to  be  gained  by 
those  whose  business  it  is  to  employ  their  capital  and  skill  in  deal¬ 
ing  in  these  securities  ;  but  in  a  question  of  this  importance  such  a 
sacrifice  is  not  worth  considering.  It  must  be  recollected  that, 
from  the  great  competition  in  this  particular  business,  the  turn  of 
the  market  is  reduced  to  a  very  small  fraction,  and  that  the  amount 
of  such  transactions  could  never  be  great,  as  the  circulation  would 
be  kept  at  its  just  level,  by  allowing  for  a  small  contraction  or 
extension  of  the  treasure  in  coin  and  bullion,  in  the  coffers  of  the 
Commissioners.  It  would  be  only  when,  from  the  increasing  wealth 
and  prosperity  of  the  country,  the  country  required  a  permanently 
increased  amount  of  circulation,  that  it  would  be  expedient  to  invest 
money  in  the  purchase  of  securities  paying  interest,  and  only  in  a 
contrary  case,  that  a  part  of  such  securities  would  be  required  to 
be  sold.  Thus,  then,  we  see  that  the  most  complete  security  could 
be  obtained  against  the  influence,  which,  on  a  first  and  superficial 
view,  it  might  be  supposed  Government  would  have  over  the  issues 
of  a  National  Bank  ;  and  that,  by  organising  such  an  establishment, 
all  the  interest,  which  is  now  annually  paid  by  Government  to  the 
Bank,  wTould  become  a  part  of  the  national  resources. 

I  would  propose,  then,  some  such  plan  as  the  following,  for  the 
establishment  of  a  National  Bank : — 

1.  Five  Commissioners  shall  be  appointed,  in  whom  the  fidl 
power  of  issuing  all  the  paper  money  of  the  country  shall  be  exclu¬ 
sively  vested. 

2.  On  the  expiration  of  the  charter  of  the  Bank  of  England,  in 
1833,  the  Commissioners  shall  issue  15  millions  of  paper  money, 
the  amount  of  the  capital  of  the  Bank  lent  to  Government,  with 
which  that  debt  shall  be  discharged.  From  that  time  the  annual 
interest  of  3  per  cent,  shall  cease  and  determine. 

3.  On  the  same  day  10  millions  of  paper  money  shall  be  employed 
by  the  Commissioners  in  the  following  manner: — With  such  parts 
of  that  sum  as  they  may  think  expedient,  they  shall  purchase  gold 
bullion  of  the  Bank,  or  of  other  persons  ;  and  with  the  remainder, 


508 


PLAN  FOR  THE  ESTABLISHMENT  OF 


within  six  months  from  the  day  above  mentioned,  they  shall  redeem  a 
part  of  the  Government  debt  to  the  Bank  on  exchequer  bills.  The 
exchequer  bills  so  redeemed  shall  thereafter  remain  at  the  disposal 
of  the  Commissioners. 

4.  The  Bank  shall  be  obliged,  with  as  little  delay  as  convenient, 
after  the  expiration  of  its  charter,  to  redeem  all  its  notes  in  circula¬ 
tion,  by  the  payment  of  them  in  the  new  notes  issued  by  Govern¬ 
ment.  It  shall  not  pay  them  in  gold,  but  shall  be  obliged  to  keep 
always  a  reserve  of  the  new  notes,  equal  in  amount  to  its  own  notes 
which  may  remain  in  circulation. 

5.  The  notes  of  the  Bank  of  England  shall  be  current  for  six 
months  after  the  expiration  of  the  Bank  charter,  after  which  they 
shall  no  longer  be  received  by  Government  in  paymentof  the  revenue. 

7.  Within  six  months  after  the  expiration  of  the  Bank  charter, 
the  notes  of  the  country  banks  shall  cease  to  circulate,  and  the 
different  banks  which  shall  have  issued  them  shall  be  under  the 
same  obligation  as  the  Bank  of  England,  to  pay  them  in  Govern¬ 
ment  notes.  They  shall  have  the  privilege  of  paying  their  notes  in 
gold  coin,  if  they  prefer  so  to  do. 

8.  For  the  greater  security  of  the  holders  of  Government  notes, 
residing  in  the  country,  there  shall  be  agents  in  the  different  towns, 
who  shall  be  obliged,  on  demand,  to  verify  the  genuineness  of  the 
notes,  by  affixing  their  signatures  to  them,  after  which  such  notes  shall 
be  exchangeable  only  in  the  district  where  they  are  so  signed. 

9.  Notes  issued  in  one  district,  or  bearing  the  signature  of  an 
agent  in  one  district,  shall  not  be  payable  in  any  other ;  but  on  the 
deposit  of  any  number  of  notes,  in  the  office  of  the  district  where 
they  were  originally  issued,  or  where  they  were  signed,  agreeably 
to  the  last  regulation,  a  bill  may  be  obtained  on  any  other  district, 
payable  in  the  notes  of  that  district. 

10.  Notes  issued  in  the  country  shall  not  be  payable  in  coin  in 
the  country  ;  but  for  such  notes  a  bill  may  be  obtained  on  London, 
which  will  be  paid  in  coin,  or  in  London  notes,  at  the  option  of  the 
party  presenting  the  bill  in  London. 

11.  Any  one  depositing  coin,  or  London  notes,  in  the  London 
office,  may  obtain  a  bill  payable  in  the  notes  of  any  other  district, 
to  be  named  at  the  time  of  obtaining  the  bill.  And  any  one 
depositing  coin  in  the  London  office  may  obtain  London  notes  to 
an  equal  amount. 

12.  The  Commissioners  in  London  shall  be  obliged  to  buy  any 
quantity  of  gold  of  standard  fineness,  and  exceeding  one  hundred 
ounces  in  weight,  that  may  be  offered  them,  at  a  price  not  less  than 
31.  17s.  6d.  per  ounce. 

13.  From  the  moment  of  the  establishment  of  the  National  Bank, 
the  Commissioners  shall  be  obliged  to  pay  their  notes  and  bills,  on 
demand,  in  gold  coin. 

14.  Notes  of  one  pound  shall  be  issued  at  the  first  establishment 
of  the  National  Bank,  and  shall  be  given  to  any  one  requiring  them 


A  NATIONAL  BANK. 


509 


in  exchange  for  notes  of  a  larger  amount,  if  the  person  presenting 
them  prefer  such  notes  to  coin.  This  regulation  to  continue  in  force 
only  for  one  year,  as  far  as  regards  London,  but  to  be  a  permanent 
one  in  all  the  country  districts. 

15.  It  must  be  well  understood,  that  in  country  districts  the 
agents  will  neither  be  liable  to  give  notes  for  coin,  nor  coin  for  notes. 

16.  The  Commissioners  shall  act  as  the  general  banker  to  all  the 
public  departments,  in  the  same  manner  as  the  Bank  of  England 
now  acts ;  but  they  shall  be  precluded  from  fulfilling  the  same  office, 
either  to  any  corporation,  or  to  any  individual  whatever. 

On  the  subject  of  the  first  l'egulation  I  have  already  spoken. 
The  Commissioners  should  be,  I  think,  five  in  number — they  should 
have  an  adequate  salary  for  the  business  which  they  would  have  to 
perform  and  superintend — they  should  be  appointed  by  Government, 
but  not  removable  by  Government. 

The  second  regulation  refers  to  the  mode  in  which  the  new  paper 
circulation  should  be  substituted  for  the  old.  By  the  provision 
here  made,  25  millions  of  paper  money  will  be  issued ;  that  sum  will 
not  be  too  large  for  the  circulation  of  the  whole  country,  but  if  it 
should  be,  the  excess  may  be  exchanged  for  gold  coin,  or  the  Com¬ 
missioners  may  sell  a  portion  of  their  exchequer  bills,  and  thus 
diminish  the  amount  of  the  paper  circulation.  There  are  other 
modes  by  which  the  substitution  of  the  new  notes  for  the  old  might 
be  made,  if  the  Bank  of  England  co-operated  with  the  Commis¬ 
sioners  :  but  the  one  here  proposed  would  be  effectual.  It  might 
be  desirable  that  Government  should  purchase  from  the  Bank,  at 
a  fair  valuation,  the  whole  of  its  buildings,  if  the  Bank  were  willing 
to  part  with  them ;  and  also  take  all  its  clerks  and  servants  into 
pay.  It  would  be  but  just  to  the  clerks  and  servants  of  the  Bank 
to  provide  employment  and  support  for  them,  and  would  be  useful 
to  the  public  to  have  the  services  of  so  many  tried  and  experienced 
officers  to  conduct  their  affairs.  It  is  a  part  of  my  plan,  too,  that 
the  payment  to  the  Bank  for  the  management  of  the  national  debt 
should  wholly  cease  at  the  expiration  of  the  Bank  charter ;  and 
that  this  department  of  the  public  business  should  be  put  under  the 
superintendence  and  control  of  the  Commissioners. 

The  third  regulation  provides  for  a  proper  deposit  of  gold  coin 
and  bullion,  without  which  the  new  establishment  could  not  act. 
In  fact,  there  would  be  14  millions  instead  of  10,  at  the  disposal  of 
the  Commissioners.  It  has  been  seen,  by  one  of  the- subsequent 
regulations,  that  the  Commissioners  would  act  as  banker  to  the 
public  departments ;  and  as  it  is  found  by  experience,  that,  on  the 
average,  these  departments  have  4  millions  in  their  banker’s  hands, 
the  Commissioners  would  have  these  4  millions  in  addition  to  the 
10  millions.  If  5  millions  were  devoted  to  the  purchase  of  coin 
and  bullion,  9  millions  would  be  invested  in  floating  securities.  If 
8  millions  were  invested  in  gold,  6  millions  would  remain  for  the 


510 


PLAN  FOR  THE  ESTABLISHMENT  OF 


purchase  of  exchequer  bills.  Whatever  debt  remained  due  to  tne 
Bank,  after  this  second  payment  made  by  the  Commissioners,  must 
be  provided  for  by  loan,  or  made  the  subject  of  a  special  agreement 
between  the  Government  and  the  Bank  of  England. 

The  fourth  and  fifth  regulations  provide  for  the  substitution  of 
the  new  paper  money  for  the  old,  and  protect  the  Bank  from  the 
payment  in  specie  of  the  notes  which  it  may  have  outstanding. 
This  cannot  be  attended  with  any  inconvenience  to  the  holders  of 
those  notes,  because  the  Bank  is  bound  to  give  them  Government; 
notes,  which  are  exchangeable  on  demand  for  gold  coin. 

The  seventh  regulation  provides  for  the  substitution  of  the  new 
notes  for  the  old  country  bank  notes.  The  country  banks  could 
have  no  difficulty  in  providing  themselves  with  the  new  notes  for 
that  purpose.  All  their  transactions  finally  settle  in  London,  and 
their  circulation  is  raised  upon  securities  deposited  there.  By 
disposing  of  these  securities,  they  would  furnish  themselves  with 
the  requisite  quantity  of  money  to  provide  for  the  payment  of  their 
notes ;  consequently  the  country  would  at  no  time  be  in  want  of  an 
adequate  circulation.  The  circulation  of  the  country  banks  is 
estimated  at  about  10  millions. 

The  eighth  regulation  provides  against  fraud  and  forgery.  In 
the  first  instance,  paper  money  cannot  be  issued  from  each  district, 
but  must  all  be  sent  from  London.  It  is  just,  therefore,  that  some 
public  agent  should,  in  as  many  places  as  convenient,  be  prepared 
to  verify  the  genuineness  of  the  notes.  After  a  time,  the  circulation 
of  each  district  would  be  carried  on  by  notes  issued  in  that  district, 
in  forms  sent  for  that  purpose  from  London. 

The  ninth  regulation  provides  every  possible  facility  lor  making 
remittances  and  payments  to  any  district  in  the  country.  If  a  man 
at  York  wishes  to  make  a  payment  of  1000/.  to  a  person  at 
Canterbury,  by  the  payment  of  1000/.  in  notes  issued  at  York  to 
the  agent  in  that  town,  he  may  receive  a  bill  for  1000/.,  payable  at 
Canterbury  in  the  notes  of  that  district. 

The  tenth  regulation  provides  for  the  payment  of  the  notes  of 
every  district  in  coin  in  London.  If  a  man  in  York  wants  1000/. 
in  coin,  Government  should  not  be  at  the  expense  of  sending  it  to 
him :  he  ought  to  be  at  that  expense  himself.  This  is  a  sacrifice 
that  must  be  made  for  the  use  of  paper  money  ;  and  if  the  inha¬ 
bitants  of  the  country  are  not  contented  to  submit  to  it,  they  may 
use  gold  instead  of  paper  ;  they  must,  nevertheless,  be  at  the  expense 
of  procuring  it. 

The  eleventh  regulation,  as  well  as  the  ninth,  provides  for  making 
l'emittances  and  payments  to  all  parts  of  the  country. 

The  twelfth  regulation  provides  against  the  amount  of  the  paper 
currency  being  too  much  limited  in  quantity,  by  obliging  the 
Commissioners  to  issue  it  at  all  times  in  exchange  for  gold  at  the 
price  of  3/.  17s.  fid.  per  ounce.  Regulating  their  issues  by  the  price 
of  gold,  the  Commissioners  could  never  err.  It  might  be  expedient 


A  NATIONAL  BANK. 


511 


to  oblige  them  to  sell  gold  bullion  at  3/.  17s.  9d.,  in  which  case  the 
coin  would  probably  never  be  exported,  because  that  can  never  be 
obtained  under  3 /.  17s.  10^d.  per  ounce.  Under  such  a  system,  the 
only  variations  that  could  take  place  in  the  price  of  gold,  would  be 
between  the  prices  of  3 /,  17s.  6d.  and  31.  17s.  9d. ;  and  by  watching 
the  market  price,  and  increasing  their  issues  of  paper  when  the 
price  inclined  to  31.  17s.  6d.  or  under,  and  limiting  them,  or  with¬ 
drawing  a  small  portion,  when  the  price  inclined  to  3/.  17s.  9d.  or 
more,  there  would  not  probably  be  a  dozen  transactions  in  the  year 
by  the  Commissioners  in  the  purchase  and  sale  of  gold  ;  and  if  there 
were,  they  would  always  be  advantageous,  and  leave  a  small  profit 
to  the  establishment.  As  it  is,  however,  desirable  to  be  on  the  safe 
side  in  managing  the  important  business  of  a  paper  money  in  a 
great  country,  it  would  be  proper  to  make  a  liberal  provision  of 
gold,  as  suggested  in  a  former  regulation,  in  case  it  should  be 
thought  expedient  occasionally  to  correct  the  exchanges  with 
foreign  countries,  by  the  exportation  of  gold  as  well  as  by  the 
reduction  of  the  amount  of  paper. 

The  thirteenth  regulation  obliges  the  Commissioners  to  pay  their 
notes  on  demand  in  gold  coin. 

The  fourteenth  regulation  provides  for  a  supply  of  one-pound 
notes  for  the  country  circulation.  On  the  first  establishment  of 
the  National  Bank,  but  not  afterwards,  these  are  to  be  issued  in 
London,  to  be  subsequently  countersigned  in  the  country.  As  a 
check  on  the  country  agents,  every  description  of  note  might  be  sent 
to  them  from  London,  numbered  and  signed.  After  receiving  them, 
the  agent  should  countersign  them  before  they  were  issued  to  the  pub¬ 
lic;  and  he  should  be  held  strictly  responsible  for  the  whole  amount 
sent  to  him,  in  the  same  manner  as  the  distributors  of  stamps  are 
responsible  for  the  whole  amount  of  stamps  sent  to  them.  It  is  hardly 
necessary  to  observe,  that  the  country  agents  ought  to  be  in  constant 
correspondence  with  the  London  district,  for  the  purpose  of  giving 
information  of  all  their  proceedings.  Suppose  a  country  agent  has 
given  100  notes  of  11.  for  a  note  of  100/.,  he  must  give  information 
of  that  fact,  sending  at  the  same  time  the  larjrer  note  for  which  he 
has  given  them.  Ilis  account  in  London  would  be  credited  and 
debited  accordingly.  If  he  receive  100/.  in  notes,  and  give  a  bill 
on  another  district,  he  must  give  advice,  both  to  the  London 
district  and  to  the  district  on  which  the  bill  is  given,  sending  up 
the  note  as  in  the  former  instance.  His  account  will  be  credited 
for  this  100/.,  and  the  agent  of  the  other  district  will  be  charged 
with  it.  It  is  not  requisite  to  go  any  farther  into  details ;  I  may 
already  have  said  too  much  ;  but  my  object  has  been  to  show  that  the 
security  for  the  detection  of  fraud  is  nearly  perfect,  as  vouchers  for 
every  transaction  would  all  be  originally  issued  in  London,  and  must 
be  returned  to  London,  or  be  in  the  possession  of  the  country  agent. 

The  fifteenth  regulation  is  only  explanatory  of  some  of  the  former 
regulations. 


512 


PLAN  FOR  TIIE  ESTABLISHMENT  OF 


The  sixteenth  regulation  directs  that  the  Commissioners  shall 
act  as  banker  to  the  public  departments,  and  to  the  public  depart¬ 
ments  only. 

If  the  plan  now  proposed  should  be  adopted,  the  country  would 
probably,  on  the  most  moderate  computation,  save  750,000/.  per 
annum.  Suppose  the  circulation  of  paper  money  to  amount  to 
25  millions,  and  the  Government  deposits  to  4  millions,  these 
together  make  29  millions.  On  all  this  sum  interest  would  be 
saved,  with  the  exception  of  6  millions,  perhaps,  which  it  might  be 
thought  necessary  to  retain  as  deposits,  in  gold  coin  and  bullion, 
and  which  would  consequently  be  unproductive,  lleckoning  interest, 
then,  at  3  per  cent,  only  on  23  millions,  the  public  would  be  gainers 
of  690,000/.  To  this  must  be  added  248,000/.  which  is  now  paid 
for  the  management  of  the  public  debt,  making  together  938,000/. 
Now,  supposing  the  expenses  to  amount  to  188,000/.,  there  would 
remain  for  the  public  an  annual  saving  or  gain  of  750,000/. 

It  will  be  remarked  that  the  plan  provides  against  any  party  but 
the  Commissioners  in  London  making  an  original  issue  of  notes. 
Agents  in  other  districts  in  the  country,  connected  with  the 
Commissioners,  may  give  one  description  of  notes  for  another;  they 
may  give  bills  for  notes,  or  notes  for  bills  drawn  on  them  ;  but,  in 
the  first  instance,  every  one  of  these  notes  must  be  issued  by  the 
Commissioners  in  London,  and  consequently  the  whole  is  strictly 
under  their  cognizance.  If  from  any  circumstances  the  circulation 
in  any  particular  district  should  become  redundant,  provision  is 
made  for  the  transfer  of  such  redundancy  to  London  ;  and  if  it 
should  be  deficient,  a  fresh  supply  is  obtained  from  London.  If 
the  circulation  of  London  should  be  redundant,  it  will  show  itself 
by  the  increased  price  of  bullion  and  the  fall  in  the  foreign 
exchanges,  precisely  as  a  redundancy  is  now  shown  ;  and  the 
remedy  is  also  the  same  as  that  now  in  operation,  viz.  a  reduction 
of  circulation,  which  is  brought  about  by  a  reduction  of  the  paper 
circulation.  That  reduction  may  take  place  two  ways ;  either 
by  the  sale  of  exchequer  bills  in  the  market,  and  the  cancelling  of 
the  paper  money  which  is  obtained  for  them,— or  by  giving  gold 
in  exchange  for  the  paper,  cancelling  the  paper  as  before,  and 
exporting  the  gold.  The  exporting  the  gold  will  not  be  done  by 
the  Commissioners  ;  that  will  be  effected  by  the  commercial 
operation  of  the  merchants,  who  never  fail  to  find  gold  the  most 
profitable  remittance  when  the  paper  money  is  redundant  and 
excessive.  If,  on  the  contrary,  the  circulation  of  London  were  too 
low,  there  would  be  two  ways  of  increasing  it, — by  the  purchase  of 
Government  securities  in  the  market,  and  the  creation  of  new  paper 
money  for  the  purpose  ;  or  by  the  importation  and  purchase,  by  the 
Commissioners,  of  gold  bullion,  for  the  purchase  of  which  new 
paper  money  would  be  created.  The  importation  would  take  place 
through  commercial  operations,  as  gold  never  fails  to  be  a  profitable 
article  of  import  when  the  amount  of  currency  is  deficient. 


ESSAY 


ON 


THE  FUNDING  SYSTEM, 


WRITTEN  FOR  THE 


SUPPLEMENT  TO  THE  SIXTH  EDITION  C'F  THE 
“  ENCYCLOPAEDIA  BRITANNICA.” 


I 


K  K 


ESSAY 


ON 


T II E  FUNDING  SYSTEM. 


Under  this  head  we  propose,  first,  to  give  an  account  of  the  rise, 
progress,  and  modifications  of  the  Sinking  Fund,  accompanied 
with  some  observations  as  to  the  probability  of  its  accomplish¬ 
ing  the  object  for  which  it  wTas  instituted ;  and  next,  briefly  to 
consider  the  best  mode  of  providing  for  our  annual  expenditure 
both  in  war  and  peace, — an  inquiry  necessarily  involving  the 
policy  of  that  System  of  Funding  of  which  the  sinking  fund 
was  long  considered  as  one  of  the  principal  recommendations  and 
props. 

I.  On  the  subject  of  the  sinking  fund,  we  shall  have  frequent 
occasion  to  refer  to  the  statements  of  Professor  Hamilton,  in  his 
very  valuable  publication  entitled  “  An  Inquiry  concerning  the  Pise 
and  Progress,  the  Kedemption,  and  Present  State  of  theNationalDebt 
of  Great  Britain.”  “  The  first  plan  for  the  discharge  of  the  national 
debt,  formed  on  a  regular  system,  and  conducted  with  a  consider¬ 
able  degree  of  firmness,”  says  this  able  w’riter,  “  was  that  of  the 
sinking  fund,  established  in  1716.  The  author  of  this  plan  was  the 
Earl  of  Stanhope  ;  but  as  it  w7as  adopted  under  the  administration 
of  Sir  Robert  Walpole,  it  is  commonly  denominated  from  him. 
The  taxes  which  had  before  been  laid  on  for  limited  periods,  being 
rendered  perpetual,  and  distributed  among  the  South  Sea,  Aggre¬ 
gate,  and  General  Fwids,  and  the  produce  of  these  funds  being 
greater  than  the  charges  upon  them,  the  surplusses,  together  with 
such  further  surplusses  as  might  afterwards  accrue,  were  united 
under  the  name  of  the  Sinking  Fund,  being  appropriated  for  the 
discharge  of  the  national  debt,  and  expressly  ordained  to  be  appli¬ 
cable  to  no  other  purpose  whatever.  The  legal  interest  had  been 
reduced  from  6  to  5  per  cent,  about  two  years  before;  and  as  that 


ESSAY  ON  THE  FUNDING  SYSTEM. 


516 

reduction  was  unfavourable  to  the  commercial  state  of  the  country, 
Government  was  now  able  to  obtain  the  same  reduction  on  the 
interest  of  the  public  debt,  and  apply  the  savings  in  aid  of  the 
sinking  fund.  In  1727  a  further  reduction  of  the  interest  of  the 
public  debt,  from  5  to  4  per  cent,  was  obtained,  by  which  nearly 
400, 000/.  was  added  to  the  sinking  fund.  And,  in  the  year  1740, 
the  interest  of  part  of  the  debt  was  again  reduced  to  34  per  cent, 
for  seven  years,  and  to  3  per  cent,  thereafter;  and,  in  1750,  the 
interest  of  the  remainder  was  reduced  to  34  per  cent,  for  five  years, 
and  to  3  per  cent,  thereafter,  by  which  a  further  saving  of  about 
000,000/.  was  added  to  the  sinking  fund.” 

This  sinking  fund  was  for  some  time  regularly  applied  to  the 
discharge  of  debt.  The  sums  applied  from  1716  to  1728  amounted 
to  6,648,000/.,  being  nearly  equal  to  the  additional  debt  contracted 
in  that  time.  From  1728  to  1733,  5,000,000/.  more  were  paid. 
The  interest  of  several  loans,  contracted  between  1727  and  1732, 
was  charged  upon  surplus  duties,  which,  according  to  the  original 
plan,  ought  to  have  been  appropriated  to  the  sinking  fund. 

“  Soon  after,  the  principle  of  preserving  the  sinking  fund  invio¬ 
lable  was  abandoned.  In  1733,  500,000/.  was  taken  from  that 
fund,  and  applied  to  the  services  of  the  year.”  “  In  1734, 1,200,000/. 
was  taken  from  the  sinking  fund  for  current  services  ;  and  in  1735 
it  wras  anticipated  and  mortgaged.”  The  produce  of  the  sinking- 
fund  at  its  commencement  in  1717,  was  323,437/.  In  1776,  it  was 
at  its  hio'hest.  amount,  brnno-  then  3,166,517/. ;  in  1780,  it  had  sunk 
to  2,403,017/. 

“  The  sinking  fund  would  have  risen  higher,  had  it  not  been 
depressed,  especially  in  the  latter  period,  by  various  encroach¬ 
ments.  It  was  charged  with  the  interest  of  several  loans,  for 
which  no  provision  was  made;  and,  in  1772,  it  was  charged  with 
an  annuity  of  100,000/.,  granted  in  addition  to  the  civil  list. 
During  the  three  wars  which  were  waged  while  it  subsisted,  the 
whole  of  its  produce  was  applied  to  the  expense  of  the  war;  and 
even  in  time  of  peace,  large  sums  were  abstracted  from  it  for  cur¬ 
rent  services.  According  to  Dr  Price,  the  amount  of  public  debt 
paid  off  by  the  sinking  fund,  since  its  first  alienation  in  1733, 
was  only  3  millions,  paid  off  in  1736  and  1737  ;  3  millions  in  the 
peace  between  1748  and  1756;  24  millions  in  the  peace  between 
1763  and  1775  ;  in  all  84  millions. 

“  The  additional  debt  discharged  during  these  periods  of  peace 
was  effected,  not  by  the  sinking  fund,  but  from  other  sources. 

“  On  the  whole,  this  fund  did  little  in  time  of  peace,  and 
nothing  in  time  of  war,  to  the  discharge  of  the  national  debt.  The 
purpose  of  its  inviolable  application  was  abandoned,  and  the  hopes 
entertained  of  its  powerful  efficacy  entirely  disappointed.  At  this 
time,  the  nation  had  no  other  free  revenue,  except  the  land  and 
malt-tax  granted  annually ;  and  as  the  land-tax  during  peace  was 
theii  granted  at  a  low  rate,  their  produce  was  inadequate  tc 


ESSAY  ON  THE  FUNDING  SYSTEM. 


517 


the  expense  of  a  peace  establishment,  on  the  most  moderate 
scale.  This  gave  occasion  to  encroachments  on  the  sinking  fund. 
Had  the  land-tax  been  always  continued  at  4s.  in  the  pound, 
it  would  have  gone  far  to  keep  the  sinking  fund,  during  peace, 
inviolate.” 

This  fund  terminated  in  178G,  when  Mr  Pitt’s  sinking  fund  was 
established. 

To  constitute  this  new  fund,  1  million  per  annum  was  appro¬ 
priated  to  it  by  Parliament,  the  capital  stock  of  the  national  debt 
then  amounting  to  238,231,248/. 

This  million  was  to  be  allowed  to  accumulate  at  compound 
interest,  by  the  addition  of  the  dividends  on  the  stock  which 
it  purchased,  till  it  amounted  to  4  millions,  from  which  time  it 
was  not  further  to  increase.  The  four  millions  were  then  annually 
to  be  invested  in  the  public  funds  as  before,  but  the  dividends 
arising  from  the  stock  purchased  were  no  longer  to  be  added  to 
the  sinking  fund  for  the  purpose  of  being  invested  in  stock;  they 
were  to  be  applied  to  the  diminution  of  taxes,  or  to  any  other 
object  that  Parliament  might  direct. 

A  further  addition  to  this  fund  was  proposed  by  Mr  Pitt,  and 
readily  adopted  in  1792,  consisting  of  a  grant  of  400,000/.  arising 
from  the  surplus  of  the  revenue,  and  a  further  annual  grant  of 
200,000/.  ;  but  it  was  expressly  stipulated  that  no  relief  from 
taxation  should  be  given  to  the  public,  as  far  as  this  fund  w'as 
concerned,  till  the  original  million,  with  its  accumulations,  amounted 
to  4  millions.  The  addition  made  to  the  fund,  by  the  grant  of 
400,000/.,  and  of  200,000/.  per  annum,  together  with  the  interest 
on  the  stock  these  sums  might  purchase,  were  not  to  be  taken  or 
considered  as  forming  any  part  of  the  4  millions.  At  the  same 
time  (in  1792),  a  sinking  fund  of  a  new  character  was  constituted. 
It  was  enacted,  that  besides  a  provision  for  the  interest  of  any 
loan  which  should  thenceforward  be  contracted,  taxes  should  also 
be  imposed  for  a  1  per  cent,  sinking  fund  on  the  capital  stock 
created  by  it,  which  should  be  exclusively  employed  in  the  liquida¬ 
tion  of  such  particular  loan  ;  and  that  no  relief  should  be  afforded  to 
the  public  from  the  taxes  which  constituted  the  1  per  cent,  sinking 
fund,  until  a  sum  of  capital  stock,  equal  in  amount  to  that  created 
by  the  loan,  had  been  purchased  by  it.  That  being  accomplished, 
both  the  interest  and  sinking  fund  were  to  be  applicable  to  the 
public  service.  It  was  calculated,  that,  under  the  most  unfavourable 
circumstances,  each  loan  would  be  redeemed  in  forty-five  years 
from  the  period  of  contracting  it.  If  made  in  the  3  per  cent., 
and  the  price  of  that  stock  should  continue  uniformly  at  60.  the 
redemption  would  be  effected  in  twenty-nine  years. 

In  the  years  1798,  1799,  and  1800,  a  deviation  was  made  from 
Mr  Pitt’s  plan  of  providing  a  sinking  fund  of  1  per  cent,  on  the 
capital  stock  created  by  every  loan  ;  for  the  loans  of  those  years 


518 


ESSAY  ON  THE  FUNDING  SYSTEM. 


on  the  war-taxes ;  and,  in  lieu  of  a  1  per  cent,  sinking  fund,  it 
was  provided  that  the  war-taxes  should  continue  during  peace, 
to  be  then  employed  in  their  redemption,  till  they  were  all 
redeemed. 

In  1802,  Lord  Sidmouth,  then  Mr  Addington,  was  chancellor 
of  the  exchequer.  He  being  desirous  of  liberating  the  war-taxes 
from  the  charges  with  which  they  were  encumbered,  proposed  to 
raise  new  annual  permanent  taxes  for  the  interest  of  the  loans  of 
which  we  have  just  spoken,  as  well  as  for  that  which  he  was  under 
the  necessity  of  raising  for  the  service  of  the  year  1802  ;  but  he 
wished  to  avoid  loading  the  public  with  additional  taxes  for  a  1 
per  cent,  sinking  fund  on  the  capitals  created  by  those  loans,  and 
which  capitals  together  amounted  to  86,790,375/.  To  reconcile 
the  stockholder  to  this  arrangement,  he  proposed  to  rescind  the 
provision  which  limited  the  fund  of  1786  to  4  millions,  and  to 
consolidate  the  old  and  the  new  sinking  funds,  i.  e.  that  which 
arose  from  the  original  million  per  annum,  with  the  addition  made 
to  it  of  200,000/.  per  annum  subsequently  granted,  and  that  which 
arose  from  the  1  per  cent,  on  the  capital  of  every  loan  that  had 
been  contracted  since  1792.  These  combined  funds  he  proposed 
should,  from  that  time,  be  applied  to  the  redemption  of  the  whole 
debt  without  distinction  ;  that  the  dividends  arising  from  the  stock 
purchased  by  the  commissioners  for  the  reduction  of  the  national 
debt  should  be  applied  in  the  same  manner ;  and  that  this  arrange¬ 
ment  should  not  be  interfered  with  till  the  redemption  of  the  whole 
debt  was  effected. 

In  February  1803  the  debt  amounted  to  480,572,470/.,  and  the 
produce  of  the  joint  sinking  fund  to  6,311,626/.  In  1786  the  pro¬ 
portion  of  the  sinking  fund  to  the  debt  was  as  1  to  238,  in  1792 
as  1  to  160,  and  in  1803  as  1  to  77. 

This  was  the  first  deviation  of  importance  from  Mr  Pitt’s  plan  ; 
and  this  alteration  made  by  Lord  Sidmouth  was  not,  perhaps,  on 
the  whole,  injurious  to  the  stockholder.  He  lost,  indeed,  the 
immediate  advantage  of  an  additional  sinking  fund  of  867,963/., 
the  amount  of  1  per  cent,  on  the  capitals  created  by  the  loans  of 
1798,  1799,  1800,  and  1802;  “but  in  lieu,”  says  Mr  Huskisson, 
“  of  this  sinking  fund,  a  reversionary  sinking  fund  was  created,  to 
commence,  indeed,  in  about  twelve  to  fifteen  years  from  that  time, 
but  to  be  of  such  efficacy  when  it  should  commence,  and  to  be  so 
greatly  accelerated  by  subsequent  additions  in  its  progress,  as, 
under  the  most  unfavourable  supposition,  to  be  certain  of  reducing 
the  whole  of  this  debt  within  forty-five  years.  This  reversionary 
sinking  fund  was  to  arise  in  the  following  manner ;  by  continuing 
the  old  sinking  fund  at  compound  interest,  after  it  should  have 
reached  its  maximum  of  4  millions  ;  and  by  continuing  also  the 
new  sinking  fund  or  aggregate  of  the  1  per  cents,  of  the  loans  since 
1792,  after  such  1  per  cents,  should  have  liquidated  the  several 
loans  in  respect  of  which  they  are  originally  issued.  There  is 


ESSAY  OX  THE  FUNDING  SY'STEM. 


519 


nothing,  therefore,  in  the  act  of  1802  which  is  a  departure  from 
the  spirit  of  the  act  of  1792.”* 

The  next  alteration  that  was  proposed  to  be  made  in  the  sinking- 
fund  was  in  1807,  by  Lord  Henry  Petty,  then  chancellor  of  the 
exchequer.  Ilis  plan  was  extremely  complicated,  and  had  for  its 
object,  that  which  ministers  are  too  much  disposed  at  all  times  to 
view  with  complacency,  namely,  to  lessen  the  burden  of  taxation 
at  the  present,  with  the  certainty  of  aggravating  its  pressure  at  a 
future  day. 

It  was  estimated  by  Lord  Henry  Petty,  that  the  expenses  of 
the  country  during  war  would  exceed  its  permanent  annual  revenue 
by  32  millions.  For  21  millions  of  this  deficiency  provision  was 
made  by  the  war-taxes  ;  the  property-tax  amounting  to  11,500,000/., 
and  the  other  war-taxes  to  9,500,000/.  The  object  then  was  to 
provide  11  millions  per  annum.  If  this  sum  had  been  raised  by  a. 
loan  in  the  3  per  cents.,  when  their  price  was  GO,  provision  must 
have  been  made  by  taxes  for  the  interest  and  sinking  fund,  so  that 
each  year  we  should  have  required  additional  taxes  to  the  amount 
of  733,333/.  But  Government  wished  to  raise  the  money  without 
imposing  these  additional  taxes,  or  by  the  imposition  of  as  few  as 
circumstances  would  permit.  For  this  purpose  they  proposed  to 
raise  the  money  required  by  loan,  in  the  usual  way,  but  to  provide, 
out  of  the  war-taxes,  for  the  interest  and  redemption  of  the  stock 
created.  They  proposed  to  increase  the  sinking  fund  of  every  such 
loan,  by  taking  from  the  war-taxes  10  per  cent,  on  its  amount  for 
interest  and  sinking  fund,  so  that  if  the  interest  and  management 
absorbed  only  5  per  cent.,  the  sinking  fund  would  also  amount  to 
5  per  cent. ;  if  the  interest  amounted  to  4  per  cent,  the  sinking 
fund  would  be  6  per  cent.  The  sums  proposed  to  be  borrowed  in 
this  manner  were  12  millions  for  the  first  three  years,  14  millions 
for  the  fourth,  and  1G  millions  for  each  succeeding  year;  making 
together,  in  14  years,  210  millions,  for  which,  at  the  rate  of  10  per 
cent.,  the  whole  of  the  war-taxes  would  be  mortgaged.  It  was 
calculated,  that,  by  the  operation  of  the  sinking  fund,  each  loan 
would  be  paid  off  in  fourteen  years  from  the  time  of  contracting  it ; 
and,  therefore,  the  1,200,000/.  set  apart  for  the  interest  and  sinking 
fund  of  the  first  loan  would  be  liberated  and  available  for  the  loan 
of  the  fifteenth  year.  At  the  end  of  fifteen  years  a  like  sum  would 
he  set  free,  anti  so  on  each  succeeding  year ;  and  thus  loans  might 
be  continued,  on  this  system,  without  any  limitation  of  time. 

But  these  successive  sums  could  not  be  withdrawn  from  the 
war-taxes,  for  interest  and  sinking  fund  on  loans,  and  be  at  the 
same  time  applied  to  expenditure  ;  and,  therefore,  the  deficiency 
of  11  millions,  for  which  provision  was  to  be  made,  would,  from 
year  to  year,  increase  as  the  war-taxes  became  absorbed  ;  and  at  the 
end  of  fourteen  years,  when  the  whole  21  millions  of  the  war-taxes 

*  Mr  Huskisson’s  Speech  on  the  Slate  of  the  Finance  and  Sinking  Fund,  25th  March 
1813. 


520 


ESSAY  ON  THE  FUNKING  SYSTEM. 


would  be  absorbed,  instead  of  11  millions  the  deficiency  would  be 
32  millions. 

To  provide  for  this  growing  deficiency,  it  was  proposed  to  raise 
supplementary  loans,  increasing  in  amount  from  year  to  year,  and 
for  the  interest  and  sinking  fund  on  such  loans  provision  was  to  be 
made  in  the  usual  way,  by  annual  permanent  taxes  ;  on  these  loans 
the  sinking  fund  was  not  to  be  more  than  1  per  cent. 

By  the  plan  proposed,  in  fifteen  years  from  its  commencement, 
on  the  supposition  of  the  war  continuing  so  long,  the  regular  loan 
would  have  been  12  millions,  and  the  supplementary  loan  20 
millions. 

If  the  expenses  of  the  war  should  have  exceeded  the  estimate 
then  made,  provision  for  such  excess  was  to  have  been  made  by 
other  means. 

The  ministry  who  proposed  this  plan  not  continuing  in  office,  it 
was  acted  upon  only  for  one  year.  “  In  comparing  the  merit  of 
different  systems,”  says  Dr  Hamilton,  “  the  only  points  necessary 
to  be  attended  to  are  the  amount  of  the  loans  contracted — the  part 
of  these  loans  redeemed — the  interest  incurred — and  the  sums 
raised  by  taxes.  The  arrangements  of  the  loan  under  different 
branches,  and  the  appropriation  of  particular  funds  for  payment  of 
their  respective  interests,  are  matters  of  official  regulation ;  and 
the  state  of  the  public  finance  is  neither  the  better  nor  the  worse, 
whether  they  be  conducted  one  -way  or  other.  A  complicated 
system  may  perplex  and  mislead,  but  it  can  never  ameliorate.”  Ac¬ 
cordingly,  Dr  Hamilton  has  shown,  that  the  whole  amount  of  taxes 
that  would  have  been  paid  in  twenty  years,  for  an  annual  loan  of 
11  millions  on  the  old  plan  of  a  sinking  fund  of  1  per  cent.,  would  he 
154  millions.  On  Lord  Henry  Petty’s  plan,  these  taxes  wotdd, 
in  the  same  time,  have  been  93  millions, — a  difference  in  favour  of 
Lord  Henry  Petty’s  plan  of  51  millions;  but  to  obtain  this  exemp¬ 
tion  we  should  have  been  encumbered  with  an  additional  debt  ot 
119,489,788/.  of  money  capital,  which,  if  raised  in  a  3  per  cent, 
stock  at  60,  would  be  equal  to  a  nominal  capital  of  199,149,646/. 

The  sinking  fund  was  established  with  a  view  to  diminish  the 
national  debt  during  peace,  and  to  prevent  its  rapid  increase  during 
war.  The  only  wise  and  good  object  of  war-taxes  is  also  to  pre¬ 
vent  the  accumulation  of  debt.  A  sinking  fund  and  war-taxes  are 
only  useful  while  they  are  strictly  applied  to  the  objects  for  which 
they  are  raised  ;  they  become  instruments  of  mischief  and  delusion 
when  they  are  made  use  of  for  the  purpose  of  providing  the  interest 
on  a  new  debt. 

In  1809  Mr  Perceval,  who  was  then  chancellor  of  the  exchequer, 
mortgaged  1,040,000/.  of  the  war-taxes  for  the  interest  and  sinking 
fund  of  the  stock  he  funded  in  that  year. 

By  taking  more  than  a  million  from  the  war-taxes,  not  for  the 
annual  expenditure,  but  for  the  interest  of  a  loan,  Mr  Perceval 
rendered  it  necessary  to  add  1  million  to  the  loan  of  the  next  and 


ESSAY  ON  THE  FUNDING  SYSTEM. 


521 


all  following  years  ;  so  that  the  real  effect  of  this  measure  differed 
in  no  respect  from  one  which  should  have  taken  the  same  sum 
annually  from  the  sinking  fund. 

In  1813,  the  next  and  most  important  alteration  was  made  in 
the  sinking  fund.  Mr  Vansittart  was  then  chancellor  of  the 
exchequer.  It  has  been  already  observed,  that  the  national  debt 
amounted  to  238,231,248/.  in  1786,  when  Mr  Pitt  established  his 
sinking  fund  of  1  million.  By  the  act  of  1786,  as  soon  as  the  sum 
of  1  million  amounted,  by  the  aid  of  the  dividends  on  the  stock 
which  was  to  be  purchased  by  it,  to  4  millions,  its  accumulation 
was  to  cease,  and  the  dividends  on  the  stock  purchased  were  to  be 
available  for  the  public  service.  If  the  3  per  cents,  were  at  60 
when  this  million  had  accumulated  to  4  millions,  the  public  would 
have  had  a  disposable  fund  of  20,000/.  per  annum  ;  if  at  80,  of 
15,000/.  per  annum ;  and  no  other  relief  was  to  be  given  to  the 
public  till  the  4  millions  had  purchased  the  whole  sum  of  238 
millions,  the  then  amount  of  the  debt.  In  1792  Mr  Pitt  added 
200,000/.  per  annum  to  the  sinking  fund,  and  accompanied  it  by 
the  following  observations  : — “  When  the  sum  of  4  millions  was 
originally  fixed  as  the  limit  for  the  sinking  fund,  it  was  not  in  con¬ 
templation  to  issue  more  annually  from  the  surplus  revenue  than 
1  million,  consequently  the  fund  would  not  rise  to  4  millions  till  a 
proportion  of  debt  was  paid  off,  the  interest  of  which,  together 
with  the  annuities  which  might  fall  in  in  the  interval,  should 
amount  to  3  millions.  But  as,  on  the  present  supposition,  addi¬ 
tional  sums  beyond  the  original  million  are  to  be  annually  issued 
from  the  revenue,  and  applied  to  the  aid  of  the  sinking  fund,  the 
consequence  would  be,  that  if  that  fund,  with  these  additions 
carried  to  it,  were  still  to  be  limited  to  4  millions,  it  would  reach 
that  amount,  and  cease  to  accumulate,  before  as  great  a  portion  of 
the  debt  is  reduced  as  was  originally  in  contemplation.”  “  In  order 
to  avoid  tins  consequence,  which  would,  as  far  as  it  went,  be  a 
relaxation  in  our  system,  I  should  propose,  that  whatever  may  be 
the  additional  annual  sums  applied  to  the  reduction  of  debt,  the 
fund  should  not  cease  to  accumulate  till  the  interest  of  the  capital 
discharged,  and  the  amount  of  the  expired  annuities  should, 
together  with  the  annual  million  only,  and  exclusive  of  any  addi¬ 
tional  sums,  amount  to  4  millions.”* 

It  will  be  recollected,  that  in  1792  a  provision  was  made  for 
attaching  a  sinking  fund  of  1  per  cent,  to  each  loan  separately, 
which  was  to  be  exclusively  employed  in  the  discharge  of  the 
debt  contracted  by  that  loan ;  but  no  part  of  these  1  per  cents, 
were  to  be  employed  in  the  reduction  of  the  original  debt  of 
238,000,000/.  The  act  of  1802  consolidated  all  these  sinking 
funds,  and  the  public  w’ere  not  to  be  exempted  from  the  pay¬ 
ment  of  the  sinking  fund  itself,  nor  of  the  dividends  on  the  stock 
to  be  purchased  by  the  commissioners,  till  the  whole  debt  existing 

*  Mr  Pitt's  Speech.  17tn  reuruarv  1792. 


522 


ESSAY  ON  THE  FUNDING  SYSTEM. 


in  1802  was  paid  off.  Mr  Vansittart.  proposed  to  repeal  the  act 
of  1802,  and  to  restore  the  spirit  of  Mr  Pitt’s  act  of  1792.  He 
acknowledged  that  it  would  be  a  breach  of  faith  to  the  national 
creditor,  if  the  fair  construction  of  that  act,  the  act  of  1792,  were 
not  adhered  to.  It  was,  in  Mr  Vansittart’s  opinion,  no  breach 
of  faith  to  do  away  the  conditions  of  the  act  1802.  Supposing, 
however,  that  the  act  of  1802  had  been  really  more  favourable 
to  the  stockholder  than  that  of  1792,  it  is  not  easy  to  compre¬ 
hend  by  what  arguments  it  can  be  proved  not  to  be  a  breach 
of  faith  to  repeal  the  one  and  enact  the  other.  Were  not  all  the 
loans  from  1802  to  1813  negotiated  on  the  faith  of  that  act? 
Were  not  all  bargains  made  between  the  buyer  and  seller  of 
stock  made  on  the  same  understanding?  Government  had  no 
more  right  to  repeal  the  act  of  1802,  and  substitute  another  less 
favourable  to  the  stockholdei’,  and  acknowledged  to  be  so  by  the 
minister  himself,  than  it  would  have  had  to  get  rid  of  the  sinking 
fund  altogether.  But  what  we  are  at  present  to  inquire  into  is, 
whether  Mr  Vansittart  did  as  he  professed  to  do?  Did  he  restore 
the  stockholder  to  all  the  advantages  of  the  act  of  1792?  In 
the  first  place,  it  was  declared  by  the  new  act,  that  as  the  sinking 
fund  consolidated  in  1802,  had  redeemed  238,350,143k  18s.  Id., 
exceeding  the  amount  of  the  debt  in  1786  by  118,895k  12s.  10^d., 
a  sum  of  capital  stock  equal  to  the  total  capital  of  the  public 
debt  existing  on  the  5th  January  1786,  viz.  238,231,248k  5s.  2fd. 
had  been  satisfied  and  discharged;  “and  that  in  like  manner  an 
amount  of  public  debt  equal  to  the  capital  and  charge  of  every 
loan  contracted  since  the  said  5th  January  1786,  shall  succes¬ 
sively,  and  in  its  proper  order,  be  deemed  and  declared  to  be 
wholly  satisfied  and  discharged,  when  and  as  soon  as  a  further 
amount  of  capital  stock,  not  less  than  the  capital  of  such  loan, 
and  producing  an  interest  equal  to  the  dividends  thereupon,  shall 
be  so  redeemed  or  transferred.” 

It  was  also  resolved,  “  that  after  such  declaration  as  aforesaid, 
the  capital  stock  purchased  by  the  commissioners  for  the  reduction 
of  the  national  debt  shall  from  time  to  time  be  cancelled  ;  at  such 
times,  and  in  such  proportions,  as  shall  be  directed  by  any  act  of 
Parliament  to  be  passed  for  such  purpose,  in  order  to  make  provision 
for  the  charge  of  any  loan  or  loans  thereafter  to  be  contracted.” 

It  was  further  resolved,  that  in  order  to  carry  into  effect  the 
provisions  of  the  acts  of  the  32d  and  42d  of  the  King,  for 
redeeming  every  part  of  the  national  debt  within  the  period  of 
forty-five  years  from  the  time  of  its  creation,  it  is  expedient  that 
in  future,  whenever  the  amount  of  the  sum  to  be  raised  bv  loan, 
or  by  any  other  addition  to  the  public  funded  debt,  shall  in  any 
year  exceed  the  sum  estimated  to  be  applicable  in  the  same  year 
to  the  reduction  of  the  public  debt,  an  annual  sum  equal  to  one- 
half  of  the  interest  of  the  excess  of  the  said  loan,  or  other 
addition,  beyond  the  sum  so  estimated  to  be  applicable,  shall  be 


ESSAY  ON  THE  FUNDING  SYSTEM. 


523 


set  apart  out  of  the  monies  composing  the  consolidated  fund  of 
Great  Britain,  and  shall  be  issued  at  the  receipt  of  the  exchequer 
to  the  Governor  and  Company  of  the  Bank  of  England,  to  be  by 
them  placed  to  the  account  of  the  commissioners  for  the  reduction 
of  the  national  debt  ;*  and  upon  the  remainder  of  such  loan  or 
other  addition,  the  annual  sum  of  1  per  cent,  on  the  capital  thereof, 
according  to  the  provisions  of  the  said  act. 

A  provision  was  also  made,  for  the  first  time,  for  1  per  cent, 
sinking  fund  on  the  unfunded  debt  then  existing,  or  which  might 
thereafter  be  contracted. 

In  1802,  it  has  been  already  observed,  it  was  deemed  expedient 
that  no  provision  should  be  made  for  a  sinking  fund  of  1  per 
cent,  on  a  capital  of  86,790,300/. ;  and  as  it  was  considered  by  the 
proposer  of  the  new  regulation  in  1813,  that  he  was  reverting 
to  the  principle  of  Mr  Pitt’s  act  of  1792,  he  provided  that 
867,963/.  should  be  added  to  the  sinking  fund  for  the  1  per  cent, 
on  the  capital  stock  created,  and  which  was  omitted  to  be  provided 
for  in  1802.  t 

This  was  the  substance  of  Mr  Yansittart’s  new  plan,  and  which, 
he  contended,  was  not  injurious  to  the  stockholder,  as  it  strictly 
conformed  to  the  spirit  of  Mr  Pitt’s  act  of  1792. 

1st,  By  Mr  Pitt’s  act,  no  relief  could  be  afforded  to  the  public 
from  the  burdens  of  taxation,  till  the  stock  redeemed  by  the  original 
sinking  fund  of  1  million  amounted  to  such  a  sum  as  that  the 
dividends  on  the  capital  stock  redeemed  should  amount  to  3 
millions,  making  the  whole  sinking  fund  4  millions;  from  thence¬ 
forth  the  4  millions  were  to  discharge  debt  as  before,  but  the 
interest  of  debt  so  discharged  was  to  be  available  for  the  public 
service,  and  the  public  was  not  to  be  relieved  from  the  charge  on 
the  remainder  of  the  debt  of  238  millions  till  the  4  millions  at 

*  The  effect  of  this  clause  was  to  give  a  sinking  fund  of  li  instead  of  1  per  cent, 
on  such  excess  of  loan  above  the  sinking  fund  if  the  loan  were  raised  in  a  3  per  cent, 
stock,  and  of  2i  per  cent,  if  raised  in  a  5  per  cent,  stock. 

t  Mr  Yansittart’s  plan  has  added  to  the  sinking  fund  1  per  cent,  on  a  capital  of 


86,796,300/., . L.867,936 

On  56  millions  of  exchequer  bills  outstanding  5th  January  1818,  1  per 

cent., .  560,000 

By  attaching  a  sinking  fund  of  one  half  the  interest,  instead  of  1  per 
cent,  on  a  part  of  the  capital  created  by  loans,  he  has  added  to  the 
sinking  fund,  .....  ...  .  793,343 


Total  added, . L. 2.221, 311 

From  stock  cancelled  and  available  for  public  service,  .  .  7,632,969 


Total  deduction  from  sinking  fund  on  5th  January  1819,  L.5.41 1.658 


On  the  3d  of  February  1819  the  Commissioners  certified  that  there  had  been  trans¬ 
ferred  to  them  378,519,969/.  5s.  3|d.  capital  stock,  the  interest  on  which  was 
11,448,564/.  10s.  6|d.,  and  that  the  debt  created  prior  to  and  by  the  37th  Geo.  III. 
amounted  to  348,684,197/.  Is.  5jd.,  with  a  yearly  interest  of  11,446,736/.  3s.  4jd. ; 
and  consequently  the  excess  redeemed  was  29,835.772/.  3s.  9^d.,  with  a  vearlv  interest 
of  1 828/.  7s.  1  jd. 


524 


ESSAY  ON  THE  FUNDING  SYSTEM. 


simple  interest,  and  the  farther  sinking  fund  which  might  arise 
from  the  filling  in  of  terminable  annuities,  together  with  the 
additional  sum  of  200,000/.  per  annum,  voted  in  1792,  with  their 
accumulations,  had  redeemed  the  capital  of  238  millions.  The 
sinking  fund  arising  from  the  1  per  cent,  on  each  loan  was  directed, 
by  the  act  of  1792,  to  be  applied  to  each  separate  loan  for  which 
it  was  raised.  Mr  Vansittart  thought  himself  justified,  and  free 
from  any  breach  of  faith  to  the  stockholder,  in  taking  for  the 
public  service,  not  the  interest  of  4  millions,  which  is  all  that  Mr 
Pitt’s  bill  w'ould  allow  him  to  take,  but  the  interest  on  238 
millions ;  and  on  what  plea  ?  because  the  whole  consolidated  sinking 
funds,  comprising  the  1  per  cent,  on  every  loan  raised  since  1793, 
had  purchased  238  millions  of  stock.  On  Mr  Pitt’s  plan  he 
might  have  taken  20,000/.  per  annum  from  the  sinking  fund;  on 
his  own  construction  of  that  act,  he  took  from  it  more  than  7 
millions  per  annum. 

2dly,  Mr  Vansittart  aeknowdedged  that  the  stockholder,  in  1802, 
was  deprived  of  the  advantage  of  1  per  cent,  sinking  fund  on 
a  capital  of  86,796,300/.;  and  therefore,  to  be  very  just,  he  gives 
in  1813  1  per  cent,  on  that  capital;  but  should  he  not  have  added 
the  accumulation  which  would  have  been  made  in  the  eleven  years 
from  1802  to  1813,  on  867,963/.,  at  compound  interest,  and  which 
would  have  given  a  further  addition  to  the  sinking  fund  of  more 
than  360,000/.  per  annum  ? 

3 dly,  On  Mr  Pitt’s  plan,  every  loan  was  to  be  redeemed  by  its 
sinking  fund,  under  the  most  unfavourable  circumstances,  in  forty- 
five  years.  If  the  loan  was  raised  in  a  3  per  cent,  fund  at  60,  and 
the  stock  was  uniformly  to  continue  at  that  price,  a  1  per  cent, 
sinking  fund  would  redeem  the  loan  to  which  it  was  attached  in 
twenty-nine  years  ;  but  then  no  relief  would  be  given  to  the  public 
from  taxation  till  the  end  of  twenty-nine  years;  and  if  there  had  been 
loans  of  10  millions  every  year  for  that  period,  when  the  first  loan 
was  paid  off,  the  second  would  require  only  one  year  for  its  final 
liquidation ;  the  third  two  years,  and  so  on.  On  Mr  Vansittart’s 
plan,  under  the  same  circumstances,  the  sinking  fund  of  each  and 
every  loan  was  to  be  applied,  in  the  first  instance,  to  the  redemption 
of  the  first  loan ;  and  when  that  was  redeemed  and  cancelled,  the 
whole  of  the  sinking  funds  were  to  be  applied  to  the  payment 
of  the  second,  and  so  on  successively.  The  first  loan  of  10 
millions  would  be  cancelled  in  less  than  thirteen  years,  the  second 
in  less  than  six  years  after  the  first,  the  third  in  a  less  time,  and  so 
on.  At  the  end  of  the  thirteenth  year,  the  public  would  be  relieved 
from  the  interest  on  the  first  loan,  or,  which  is  the  same  thing, 
from  the  necessity  of  finding  fresh  taxes  for  a  new  loan  at  the 
end  of  thirteen  years,  for  two  new  loans  at  the  end  of  nineteen 
years ;  but  what  would  be  the  state  of  its  debt  at  either  of  these 
periods,  or  at  the  end  of  twenty-nine  years  ?  Could  this  ad¬ 
vantage  be  obtained  without  a  corresponding  disadvantage  ?  No  : 


ESSAY  ON  THE  FUNDING  SYSTEM. 


noe 

O&fJ 

the  excess  of  debt  on  Mr  Vansittart’s  plan  would  be  exactly 
equal  to  these  various  sums,  thus  prematurely  released  by  cancelled 
stock,  accumulated  at  compound  interest.  How  could  it  be  other¬ 
wise  ?  Is  it  possible  that  we  could  obtain  a  present  relief  from  the 
charge  of  debt  without  either  directly  or  indirectly  borrowing  the 
fund  necessary  to  provide  that  relief  at  compound  interest?  “  By 
this  means,”  says  Mr  Vansittart,  “the  loan  first  contracted  would 
be  discharged  at  an  earlier  period,  and  the  funds  charged  with  the 
payment  of  its  intei’est  would  become  applicable  to  the  public 
service.  Thus,  in  the  event  of  a  long  war,  a  considerable  resource 
might  accrue  during  the  course  of  the  war  itself,  as  every  successive 
loan  would  contribute  to  accelerate  the  redemption  of  those  pre¬ 
viously  existing ;  and  the  total  amount  of  charge  to  be  borne  by  the 
public,  in  respect  of  the  public  debt,  would  be  reduced  to  a  narrower 
compass  than  in  the  other  mode,  in  which  a  greater  number  of  loans 
would  be  co-existing.  At  the  same  time  the  ultimate  discharge 
of  the  whole  debt  would  be  rather  accelerated  than  retarded.” — “  It 
is  now  only  necessary  to  declare  that  an  amount  of  stock  equal  to 
the  whole  of  the  debt  existing  in  1786  has  been  redeemed;  and 
that,  in  like  manner,  whenever  an  amount  of  stock  equal  to  the 
capital  and  charge  of  any  loan  raised  since  1792  shall  be  redeemed, 
in  its  proper  order  of  succession,  such  loan  shall  be  deemed  and 
taken  to  be  redeemed  and  satisfied.  Every  part  of  the  system  will 
then  fall  at  once  into  its  proper  place  ;  and  we  shall  proceed  with 
the  future  redemption  with  all  the  advantages  which  would  have 
been  derived  from  the  original  adoption  of  the  mode  of  successive 
instead  of  simultaneous  redemption.  Instead  of  waiting  till  the 
purchase  of  the  whole  of  the  debt  consolidated  in  1802  shall  be 
completed,  that  part  of  it  which  existed  previously  to  1792  will  be 
considered  as  already  redeemed,  and  the  subsequent  loans  will 
follow  in  succession,  whenever  equal  portions  of  stock  shall  have 
been  purchased.  It  is  satisfactory  to  observe,  that  by  a  gradual 
and  equal  progress,  we  shall  have  the  power  of  effecting  the 
complete  repayment  of  the  debt  more  speedily  than  by  the  present 
course.”  Is  it  possible  that  Mr  Vansittart  could  so  deceive  him¬ 
self  as  to  believe  that,  by  taking  5  millions  from  the  sinking  fund, 
which  would  not  have  been  taken  by  the  provisions  of  the  act  of 
1802,  which  would  not  have  been  taken  by  the  act  of  1792,  and 
other  sums  successively,  in  shorter  times  than  could  have  been 
effected  by  the  provisions  of  those  two  acts,  he  would  be  enabled 
to  complete  the  repayment  of  the  debt  more  speedily  ?  Is  it 
possible  that  he  could  believe  that,  by  diminishing  the  sinking 
fund,  that  is,  the  amount  of  revenue  as  compared  with  expendi¬ 
ture,  he  would  effect  the  payment  of  our  debt  more  speedily  ? 
It  is  impossible  to  believe  this.  How,  then,  are  his  words  to  be 
accounted  for?  In  one  way  he  might  have  a  meaning.  It  might 
be  this, — I  know  we  shall  be  more  in  debt  in  ten,  twenty,  and 
thirty  years,  on  my  plan,  than  we  should  have  been  on  that  of 


526 


ESSAY  OX  THE  FUNDING  SYSTEM. 


Lord  Sidinouth  or  on  that  of  Mr  Pitt;  but  we  shall  have  effected 
a  greater  payment  in  that  time  of  the  stock  now  existing ,  as  the 
sinking  funds  attached  to  future  loans  will  be  employed  in  paying 
our  present  debt.  On  Mr  Pitt’s  plan,  those  sinking  funds  would 
be  used  for  the  payment  of  the  new  debt  to  be  created  ;  that  is  to 
say,  of  the  loans  to  which  they  are  respectively  attached.  We 
shall  be  more  in  debt  at  every  subsequent  period,  it  is  true ;  but 
as  our  debt  may  be  divided  into  old  stock  and  new  stock,  I  am 
correct  when  I  say  that  we  shall  have  the  power  of  completing 
the  repayment  of  the  debt,  meaning  by  the  debt  the  stock  now 
existing,  sooner  than  by  the  present  course. 

This  plan  of  Mr  Vansittart  was  opposed  with  great  ability,  both 
by  Mr  Huskisson  and  Mr  Tierney.  The  former  gentleman  said, 
“  The  very  foundation  of  the  assumption  that  the  old  debt  has  been 
paid  off,  is  laid  in  the  circumstance  of  our  having  incurred  a  new 
debt  of  a  much  larger  amount;  and  even  allowing  that  assumption, 
Mr  Vansittart  would  not  have  been  able  to  erect  his  present  scheme 
upon  it,  if  the  credit  of  the  country  had  not  been,  for  the  last  twenty 
years,  materially  impaired  by  the  pressure  of  that  new  debt.  On 
the  one  hand,  had  the  sinking  fund  been  operating  at  3  per  cent, 
during  that  period,  he  would  not  have  touched  it,  even  under  his 
own  construction  of  the  act  of  1792.  On  the  other  hand,  had  the 
price  of  the  stocks  been  still  lower  than  it  has  been,  he  would  have 
taken  from  that  sinking  fund  still  more  largely  than  he  is  now, 
according  to  his  own  rule,  enabled  to  take.  This,  then,  is  the  new  doc¬ 
trine  of  the  sinking  fund  ; — that,  having  been  originally  established 
‘  to  prevent  the  inconvenient  and  dangerous  accumulation  of  debt 
hereafter’  (to  borrow  the  very  words  of  the  act),  and  for  the  sup¬ 
port  and  improvement  of  public  credit,  it  is  in  the  accumulation  of 
new  debt  that  Mr  Vansittart  found  at  once  the  means  and  the 
pretence  for  invading  that  sinking  fund  ;  and  the  degree  of 
depression  of  public  credit  wTas,  with  him,  the  measure  of  the  extent 
to  which  that  invasion  might  be  carried.  And  this  is  the  system 
of  which  it  is  gravely  predicated  that  it  is  no  departure  from  the 
letter,  and  no  violation  of  the  spirit,  of  the  act  of  1792;  and  of 
which  we  are  desired  seriously  to  believe,  that  it  is  only  the  follow¬ 
ing  up  and  improving  upon  the  original  measure  of  Mr  Pitt ! — of 
which  measure  the  clear  and  governing  intention  was,  that  every 
future  loan  should,  from  the  moment  of  its  creation ,  carry  with  it  the 
seeds  of  its  destruction ;  and  that  the  course  of  its  reimbursement 
should  that  moment  be  placed  beyond  the  discretion  and  control  of 
Parliament.” — {Mr  Huskisson' s  Speech ,  25th  March  1813.) 

This  is  the  last  alteration  that  has  taken  place  in  the  machinery 
of  the  sinking  fund.  Inroads  more  fatal  than  this  which  we  have 
just  recorded  have  been  made  on  the  fund  itself;  but  they  have 
been  made  silently  and  indirectly,  while  the  machinery  has  been 
left  unaltered. 

It  has  been  shown  by  Dr  Hamilton,  that  no  fund  can  be  efficient 


ESS.VY  ON  THE  FUNDING  SYSTEM. 


527 


for  the  reduction  of  debt  but  such  as  arises  from  an  excess  of 
revenue  above  expenditure. 

Suppose  a  country  at  peace,  and  its  expenditure,  including  the 
interest  of  its  debt,  to  be  40  millions,  its  revenue  to  be  41  millions, 
it  would  possess  1  million  of  sinking  fund.  This  million  would 
accumulate  at  compound  interest,  for  stock  would  be  purchased 
with  it  in  the  market,  and  placed  in  the  names  of  the  Commis¬ 
sioners  for  paying  off  the  debt.  These  Commissioners  would  be 
entitled  to  the  dividends  before  received  by  private  stockholders, 
which  would  be  added  to  tbe  capital  of  the  sinking  fund.  The 
fund  thus  increased  would  make  additional  purchases  the  following 
year,  and  would  be  entitled  to  a  larger  amount  of  dividends,  and 
thus  would  go  on  accumulating,  till  in  time  the  whole  debt  would 
be  discharged. 

Suppose  such  a  country  to  increase  its  expenditure  1  million, 
without  adding  to  its  taxes,  and  to  keep  up  the  machinery  of  the 
sinking  fund,  it  is  evident  that  it  would  make  no  progress  in  the 
reduction  of  its  debt ;  for  though  it  would  accumulate  a  fund  in 
the  same  manner  as  before,  in  the  hands  of  the  Commissioners,  it 
would,  by  means  of  adding  to  its  funded  or  unfunded  debt,  and  by 
constantly  borrowing,  in  the  same  way,  the  sum  necessary  to  pay 
the  interest  on  such  loans,  accumulate  its  million  of  debt  annually 
at  compound  interest,  in  the  same  manner  as  it  accumulated  its 
million  annually  of  sinking  fund. 

But  suppose  that  it  continued  its  operations  of  investing  the 
sinking  fund  in  the  purchase  of  stock,  and  made  a  loan  for  the 
million  which  it  was  deficient  in  its  expenditure,  and  that,  in  order 
to  defray  the  intei’est  and  sinking  fund  of  such  loan,  it  imposed 
new  taxes  on  the  people  to  the  amount  of  60,000/.,  the  real  and 
efficient  sinking  fund  would,  in  that  c?tse,  be  60,000/.  per  annum, 
and  no  more  ;  for  there  would  be  1,060,000/.,  and  no  more,  to 
invest  in  the  purchase  of  stock,  while  1  million  was  raised  bv  the 
sale  of  stock,  or,  in  other  words,  the  revenue  would  exceed  the 
expenditure  by  60,000/. 

Suppose  a  war  to  take  place,  and  the  expenditure  to  be  increased 
to  60  millions,  while  its  revenue  continued,  as  before,  41  millions, 
still  keeping  on  the  operation  of  the  Commissioners  with  respect 
to  the  investment  of  1  million.  If  it  were  to  raise  war-taxes  for 
the  payment  of  the  20  millions  additional  expense,  the  million  of 
sinking  fund  would  operate  to  the  reduction  of  the  national  debt 
at  compound  interest  as  it  did  before.  If  it  raised  20  millions 
by  loan  in  the  stocks  or  in  exchequer  bills,  and  did  not  provide  for 
the  interest  by  new  taxes,  but  obtained  it  by  an  addition  to  the 
loan  of  the  following  year,  it  would  be  accumulating  a  debt  of  20 
millions  at  compound  interest ;  and  while  the  war  lasted,  and  the 
same  expenditure  continued,  it  would  not  only  be  accumulating  a 
debt  of  20  millions  at  compound  interest,  but  a  debt  of  20  millions 
per  annum  •  and  consequently  the  real  increase  of  its  debt,  after 


ESSAY  ON  TIIE  FUNDING  SYSTEM. 


528 


allowing  for  the  operation  of  the  million  of  sinking  fund,  would  he 
at  the  rate  of  19  millions  per  annum  at  compound  interest.  But 
if  it  provided  by  new  taxes  5  per  cent,  interest  for  this  annual  loan 
of  20  millions,  it  would,  on  the  one  hand,  simply  increase  the  debt 
20  millions  per  annum ;  on  the  other,  it  would  diminish  it  by 
1  million  per  annum,  with  its  compound  interest.  If  we  suppose 
that,  in  addition  to  the  5  per  cent,  interest,  it  raised  also  by  annual 
taxes  200,000/.  per  annum  as  a  sinking  fund  for  each  loan  of  20 
millions,  it  would,  the  first  year  of  the  war,  add  200,000/.  to  the 
sinking  fund,  the  second  year  400,000/.,  the  third  year  600,000/., 
and  so  on,  200,000/.  for  every  loan  of  20  millions.  Every  year  it 
would  add,  by  means  of  the  additional  taxes,  to  its  annual  revenue, 
without  increasing  its  expenditure.  Every  year,  too,  that  part  of 
this  revenue  which  was  devoted  to  the  purpose  of  purchasing  debt, 
would  increase  by  the  amount  of  the  dividends  on  the  stock  pur¬ 
chased,  and  thus  would  its  revenue  still  further  increase,  till  at  last 
the  revenue  would  overtake  the  expenditure,  and  then  once  again 
it  would  have  an  efficient  sinking  fund  for  the  reduction  of  debt. 

It  is  evident  that  the  result  of  these  operations  would  be  the 
same,  the  rate  of  interest  being  supposed  to  be  always  at  5  per 
cent.,  or  any  other  rate,  if,  during  the  excess  of  expenditure  above 
revenue,  the  operation  of  the  Commissioners  in  the  purchase  of 
6tock  were  to  cease.  The  real  increase  of  the  national  debt  must 
depend  upon  the  excess  of  expenditure  above  revenue,  and  that 
would  be  noways  altered  by  a  different  arrangement.  Suppose 
that,  instead  of  raising  20  millions  the  first  year,  and  paying  off 
1  million,  only  19  millions  had  been  raised  by  loan,  and  the  same 
taxes  had  been  raised,  namely,  1,200,000/.  As  5  per  cent,  would 
be  paid  on  19  millions  only,  instead  of  on  20  millions,  or  950,000/. 
for  interest  instead  of  1  million,  there  would  remain,  in  addition  to 
the  original  million,  250,000/.  towards  the  loan  of  the  following 
year,  consequently  the  loan  of  the  second  year  would  be  only  for 
18,750,000/.;  but  as  1,200,000/.  would  be  again  raised  by  addi¬ 
tional  taxes,  or  2,400,000/.  in  the  whole  the  second  year,  besides 
the  original  million,  there  would  be  a  surplus,  after  paying  the 
interest  of  both  loans,  of  1,512,500/.,  and  therefore  the  loan  of  the 
third  year  would  be  for  18,487,500/.  The  progress  during  five 
years  is  shown  in  the  following  table  : — 


Loan 

each  Year. 

Amount 
of  Loans. 

Amount 
of  Interest. 

Amount 
of  Taxes. 

Surplus. 

£ 

£ 

£ 

£ 

£ 

1st  year . 

19.000,000 

19,000,000 

950,000 

2,200,000 

1,250,000 

2d  year . 

18,750,000 

37,750,000 

1,887,500 

3,400,000 

1,512,500 

3d  year . 

18,487,500 

56,237,500 

2,811,875 

4,600,000 

1,788,125 

4th  year . 

18,211,875 

74,449,375 

3,722,469 

5,800,000 

2,077,531 

5th  year . 

17,922,469 

92,371,844 

4,618,592 

7,000,000 

2,381,408 

ESSAY  ON  THE  FUNDING  SYSTEM. 


529 


If,  instead  of  thus  diminishing  the  loan  each  year,  the  same 
amount  of  taxes  precisely  had  been  raised,  and  the  sinking  fund 
had  been  applied  in  the  usual  manner,  the  amount  of  debt  would 
have  been  exactly  the  same  at  any  one  of  these  periods.  In  the 
third  column  of  the  above  table  it  will  be  seen,  that  in  the  fifth 
year  the  debt  had  increased  to  92,371,844/.  On  the  supposition 
that  200,000/.  per  annum  had  each  year  been  added  to  the  sinking 
fund,  and  invested  in  stock  by  the  Commissioners,  the  amount  of 
unredeemed  debt  would  have  been  the  same  sum  of  92.371,844/., 
as  will  be  seen  by  the  last  column  of  the  following  table  : — 


Loan 

each  Year. 

Amount 

of 

Loans. 

Debt 

Redeemed 
each  Year. 

Amount 

Debt 

Redeemed. 

Interest 
on  Debt 
Redeemed. 

Debt 

remaining 

Unredeemed. 

1  st  year  . . . 
2d  year  ... 
3d  year  ... 
4th  year... 
5th  year... 

£ 

20,000,000 

20,000,000 

20,000,000 

20,000,000 

20,000,000 

£ 

20,000,000 

40,000,000 

60,000,000 

80,000,000 

100,000,000 

£ 

1,000,000 

1,250,000 

1,512,500 

1,788,125 

2,077,531 

£ 

1,000,000 

2,250,000 

3,762,500 

5,550.625 

7,628,156 

£ 

50,000 

112,500 

188,125 

277,531 

381,408 

£ 

19,000,000 

37,750,000 

56,237,500 

74,449,375 

92,371,844 

A  full  consideration  of  this  subject,  in  all  its  details,  has  led 
I)r  Hamilton  to  the  conclusion,  that  this  first  mode  of  raising  the 
supplies  during  war,  viz.  by  diminishing  the  amount  of  the  annual 
loans,  and  stopping  the  purchases  of  the  Commissioners  in  the 
market,  would  be  more  economical,  and  that  it  ought  therefore  to 
be  adopted.  In  the  first  place,  all  the  expenses  of  agency  would 
be  saved ;  in  the  second,  the  premium  usually  obtained  bv  the 
contractor  for  the  loan  would  he  saved  on  that  part  of  it  which  is 
repurchased  by  the  Commissioners  in  the  open  market.  It  is  true 
that  the  stocks  may  fall  as  well  as  rise  between  the  time  of  con¬ 
tracting  for  the  loan  and  the  time  of  the  purchases  made  by  the 
Commissioners,  and  therefore,  in  some  cases,  the  public  may  gain 
by  the  present  arrangement ;  but  as  these  chances  are  equal,  and 
a  certain  advantage  is  given  to  the  loan  contractor,  to  induce  him 
to  advance  his  money,  independently  of  all  contingency  of  future 
price,  the  public  now  give  this  advantage  on  the  larger  sum  instead 
of  on  the  smaller.  On  an  average  of  years  this  cannot  fail  to 
amount  to  a  very  considerable  sum.  But  both  these  objections 
would  be  obviated,  if  the  clause  in  the  original  sinking  fund  bill, 
authorising  the  Commissioners  to  subscribe  to  any  loan  for  the 
public  service,  to  the  amount  of  the  annual  fund  which  they  have 
to  invest,  were  uniformly  complied  with.  This  is  the  mode  which 
was  for  several  years  strongly  urged  by  Mr  Grenfell,  and  it  is  far 
preferable  to  that  which  Dr  Hamilton  recommends.  Dr  Hamilton 
and  Mr  Grenfell  both  agree,  that  in  time  of  war,  when  the  expen¬ 
diture  exceeds  the  revenue,  and  when  therefore  we  are  annually 
increasing  our  debt,  it  is  a  useless  operation  to  buy  a  comparatively 

L  L 


530 


ESSAY  ON  THE  FUNDING  SYSTEM 


small  quantity  of  stock  in  the  market,  while  we  are  at  the  same 
time  under  the  necessity  of  making  large  sales  :  but  Dr  Hamilton 
would  not  keep  the  sinking  fund  as  a  separate  fund;  Mr  Grenfell 
would,  and  would  have  it  increased  with  our  debt  by  some  known 
and  fixed  rules.  We  agree  with  Mr  Grenfell.  If  a  loan  of  20 

millions  is  to  be  raised  annually,  while  there  is  in  the  hands  of 

the  Commissioners  10  millions  which  they  annually  receive,  the 
obvious  and  simple  operation  should  be  vreally  to  raise  only  10 

millions  by  loan ;  but  there  is  a  convenience  in  calling  it  20 

millions,  and  allowing  the  Commissioners  to  subscribe  10  millions. 
All  the  objections  of  Dr  Hamilton  are  by  these  means  removed  ; 
there  will  be  no  expense  for  agency  ;  there  will  be  no  loss  on 
account  of  any  difference  of  price  at  which  the  public  sell  and  buy. 
Bv  calling  the  loan  20  millions  the  public  will  be  induced  more 
easily  to  bear  the  taxes  which  are  necessary  for  the  interest  and 
sinking  fund  of  20  millions.  Call  the  loan  only  10  millions,  abolish 
during  the  war  the  very  name  of  the  sinking  fund  in  all  your 
public  accounts,  and  it  would  be  difficult  to  show  to  the  people 
the  expediency  of  providing  1,200,000k  per  annum  by  additional 
taxation,  for  the  interest  of  a  loan  of  10  millions.  The  sinking- 
fund  is  therefore  useful  as  an  engine  of  taxation,  and  if  the  country 
could  depend  on  ministers,  that  it  would  be  faithfully  devoted  to 
the  purposes  for  which  it  was  established,  namely,  to  afford  at  the 
termination  of  war  a  clear  additional  surplus  revenue  beyond  expen¬ 
diture,  in  proportion  to  the  addition  made  to  the  debt,  it  would  be 
wise  and  expedient  to  keep  it  as  a  separate  fund,  subject  to  fixed 
rules  and  regulations. 

We  shall  presently  inquire  whether  there  can  be  any  such 
dependence,  and  therefore  whether  the  sinking  fund  is  not  an 
instrument  of  mischief  and  delusion,  and  really  tending  rather  to 
increase  our  debt  and  burdens  than  to  diminish  them. 

It  is  objected  both  to  Dr  Hamilton’s  and  Mr  Grenfell’s  projects, 
that  the  disadvantages  which  they  mention  are  trifling  in  degree, 
and  are  more  than  compensated  by  the  steadiness  which  is  given 
to  the  market  by  the  daily  purchases  of  the  Commissioners  ;  that 
the  money  which  those  purchases  throw  into  the  market  is  a 
resource  on  which  bankers  and  others,  who  may  suddenly  want 
money,  with  certainty  rely. 

Those  wdio  make  this  objection  foiget,  that  if,  by  the  adoption 
of  this  plan,  a  daily  purchaser  is  withdrawn  from  the  market,  so 
also  is  a  daily  seller.  The  minister  gives  now  to  one  party  10 
millions  of  money  to  invest  in  stock,  and  to  another  party  as  much 
stock  as  10  millions  costs  to  sell,  and  as  the  instalments  on  the 
loan  are  paid  monthly,  it  may  fairly  be  said  that  the  supply  is  as 
regular  as  the  demand.  It  cannot  be  doubted  too,  that  a  loan  of 
20  millions  is  negotiated  on  w’orse  terms  than  one  of  10.  It  is 
true  that  no  more  stock  will  remain  in  the  market  at  the  end  of 
the  year,  whether  the  one  or  the  other  sum  be  raised  by  loan,  but 


ESSAY  OX  THE  FUNDING  SYSTEM. 


531 


for  a  time  the  contractor  must  make  a  large  purchase,  and  he  must 
wait  before  he  can  make  his  sale  of  10  millions  to  the  Commis¬ 
sioners.  He  is  induced  then  to  sell  much  more  largely  before  the 
contract,  which  cannot  fail  to  affect  the  market  price,  and  it  must 
be  recollected,  that  it  is  the  market  price  on  the  day  of  bidding 
for  the  loan  which  governs  the  terms  on  which  the  loan  is  nego¬ 
tiated.  It  is  looked  to  both  by  the  minister  who  sells  and  the 
contractor  who  purchases.  The  experiment  on  Mr  Grenfell’s  sug¬ 
gestion  was  tried  for  the  first  time  in  1819  ;  the  sum  required  by 
Government  was  24  millions,  to  which  the  Commissioners  subscribed 
12  millions.  In  lieu  of  a  loan  of  24  millions  from  the  contractor, 
there  was  one  only  of  12  millions,  and  as  soon  as  this  arrangement 
Avas  known,  previous  to  the  contract,  the  stocks  rose  to  4  or  5  per 
cent.,  and  influenced  the  terms  of  the  loan  in  that  degree.  The 
reason  was,  that  a  preparation  had  been  made  for  24  or  30  millions 
loan,  and  as  soon  as  it  Avas  known  that  it  Avould  be  for  12  millions 
only  a  part  of  the  stock  sold  Avas  repurchased.  Another  advantage 
attending  the  smaller  loan  is,  that  800/.  per  million,  Avhich  is  paid 
to  the  Bank  for  management  of  the  loan,  is  saved  on  the  sum 
subscribed  by  the  Commissioners. 

Dr  Hamilton,  in  another  part  of  his  Avork,  observes,  “  If  the 
sinking  fund  could  be  conducted  Avithout  loss  to  the  public,  or 
even  if  it  Avere  attended  with  a  moderate  loss,  it  would  not  be 
Avise  to  propose  an  alteration  of  a  system  which  has  gained  the 
confidence  of  the  public,  and  which  points  out  a  rule  of  taxation 
that  has  the  advantage  at  least  of  being  steady.  If  that  rule  be 
laid  aside,  our  measures  of  taxation  might  become  entirely  loose.” 

“  The  means,  and  the  only  means,  of  restraining  the  progress  of 
national  debt,  are  saving  of  expenditure  and  increase  of  revenue. 
Neither  of  these  has  a  necessary  connexion  with  a  sinking  fund. 
But  if  they  have  an  eventual  connexion,  and  if  the  nation,  im¬ 
pressed  with  a  conviction  of  the  importance  of  a  system  established 
by  a  popular  minister  has,  in  order  to  adhere  to  it,  adopted  measures 
either  of  frugality  in  expenditure,  or  exertion  in  raising  taxes, 
Avhich  it  would  not  otherwise  have  done,  the  sinking  fund  ought 
not  to  be  considered  as  inefficient,  and  its  effects  may  be  of  great 
importance.” 

it  Avill  not,  Ave  think,  admit  of  a  doubt,  that  if  Mr  Pitt’s  sinking 
fund,  as  established  in  1792,  had  been  always  fairly  acted  upon — 
if,  for  every  loan,  in  addition  to  the  war-taxes,  the  interest,  and  a 
1  per  cent,  sinking  fund  had  been  invariably  supplied  by  annual 
taxes — Ave  should  have  made  rapid  progress  in  the  extinction  of 
debt.  The  alteration  in  principle  Avhich  Avas  made  in  the  sinking 
fund  by  the  act  of  1802  was,  in  our  opinion,  a  judicious  one  :  it 
provided  that  no  part  of  the  sinking  fund,  neither  that  Avhich  arose 
from  the  original  million,  Avith  its  addition  of  200,000/.  per  annum, 
nor  that  Avhich  arose  from  the  1  per  cent,  raised  for  the  loans  since 
1792,  should  be  applicable  to  the  public  service  till  the  Avhole  of 


532 


ESSAY  ON  THE  FUNDING  SYSTEM. 


the  debt  then  existing  was  redeemed.  We  should  have  been  dis¬ 
posed  to  extend  this  principle  further,  and  to  make  a  provision, 
that  no  part  of  the  sinking  fund  should  he  applicable  to  the  public 
service  until  the  whole  of  the  debt  then  existing,  and  subsequently 
to  be  created ,  should  he  redeemed.  We  do  not  think  that  there  is 
much  weight  in  the  objection  to  this  clause,  which  was  made  to  it  by 
Lord  Henry  Petty  in  1807,  and  referred  to  and  more  strong^  urged 
by  Mr  Vansittart  in  1813.  The  noble  Lord  said,  “  I  need  hardly 
press  upon  the  consideration  of  the  committee  all  the  evils  likely 
to  result  from  allowing-  the  sinking  fund  to  accumulate  without 
any  limit,  for  the  nation  would  be  exposed  by  that  accumulation 
to  the  mischief  of  having  a  large  portion  of  capital  taken  at  once 
out  of  the  market,  without  any  adequate  means  of  applying  it, 
which  would  of  course  be  deprived  of  its  value. 

“  This  evil  must  appear  so  serious  to  any  man  who  contemplates 
its  character,  that  I  have  no  doubt  it  will  be  felt,  however  para¬ 
doxical  it  may  seem,  that  the  redemption  of  the  whole  national 
debt  at  once  would  be  productive  of  something  like  national  bank¬ 
ruptcy  ;  for  the  capital  would  be  equivalent  almost  to  nothing, 
while  the  interest  he  had  before  derived  from  it  would  be  altogether 
extinguished.  The  other  evils  which  would  arjse  from,  and  which 
must  serve  to  demonstrate  the  mischievous  consequence  of  a  prompt 
discharge  of  the  national  debt,  1  will  show  presently.  Different 
arrangements  were  adopted  in  the  further  provisions  made  on  the 
subject  of  the  sinking  fund  in  1792  and  in  1802.  By  the  first  the 
sinking  fund  of  1  per  cent.,  which  was  thenceforward  to  be  pro¬ 
vided  for  every  new  loan,  was  made  to  accumulate  at  compound 
interest,  until  the  whole  of  the  debt  created  by  such  new  loan 
should  be  extinguished.  And  by  the  second  arrangement,  all  the 
various  sinking  funds  existing  in  1802  were  consolidated,  and  the 
whole  were  appropriated  to  accumulate  at  compound  interest  until 
the  discharge  of  the  wdiole  of  the  debt  also  existing  in  1802.  But 
the  debt  created  since  1802,  amounting  to  about  100  millions  of 
nominal  capital,  is  still  left  subject  to  the  act  of  1792,  which  pro¬ 
vides  for  each  separate  loan  a  sinking  fund  of  only  1  per  cent,  on 
the  nominal  capital.  The  plan  of  1802,  engrafted  on  the  former 
acts  of  1786  and  1792,  provided  for  the  still  more  speedy  extinction 
of  the  debt  to  which  it  applied  ;  but  it  would  postpone  all  relief 
from  the  public  burdens  to  a  very  distant  period  (computed  in 
1802  to  be  from  1834  to  1844)  ;  and  it  would  throw  such  large 
and  disproportionate  sums  into  the  money  market  in  the  latter 
years  of  its  operation,  as  might  produce  a  very  dangerous  deprecia¬ 
tion  of  the  value  of  money.  Many  inconveniences  might  also 
arise  from  the  sudden  stop  which  would  be  put  to  the  application 
of  those  sums  when  the  whole  debt  should  have  been  redeemed, 
and  from  the  no  less  sudden  change  in  the  price  of  all  commodities, 
which  must  follow  from  taking  off  at  one  and  the  same  moment 
taxes  to  an  extent  probably  then  much  exceeding  30  millions. 


ESSAY  ON  TIIE  FUNDING  SYSTEM. 


533 


The  fate  of  merchants,  manufacturers,  mechanics,  and  every  descrip¬ 
tion  of  dealers,  in  such  an  event,  must  be  contemplated  by  every 
thinking  man  with  alarm  ;  and  this  applies  to  my  observation 
respecting  a  national  bankruptcy ;  for,  should  the  national  debt  be 
discharged,  and  such  a  weight  of  taxation  taken  off  at  once,  all  the 
goods  remaining  on  hand  would  be,  comparatively  speaking,  of  no 
value  to  the  holders,  because,  having  been  purchased  or  manu¬ 
factured  while  such  taxation  prevailed,  they  must  be  undersold  by 
all  those  who  might  manufacture  the  same  kind  of  goods  after 
such  taxation  had  ceased.  These  objections  were  foreseen,  and  to 
a  certain  degree  acknowledged,  at  the  time  when  the  act  of  1802 
was  passed,  and  it  was  then  answered,  that  whenever  the  danger 
approached  it  might  be  obviated  by  subsequent  arrangements.” 
A  great  many  of  these  objections  appear  to  us  to  be  chimerical, 
but,  if  well  founded,  we  agree  with  the  latter  part  of  the  extract, 
“  whenever  the  danger  approached  it  might  be  obviated  by  subse¬ 
quent  arrangements.”  It  was  not  necessary  to  legislate  in  1807 
or  in  1813  for  a  danger  which  could  not  happen  till  between  1834 
and  1844.  It  was  not  necessary  to  provide  against  the  evils  which 
would  arise  from  a  plethora  of  wealth  at  a  remote  period,  when 
our  real  difficulty  was  how  to  supply  our  immediate  and  pressing 
wants. 

What  are  the  evils  apprehended  from  the  extravagant  growth 
of  the  sinking  fund  towards  the  latter  years  of  its  existence?  Not 
that  taxation  will  be  increased,  because  the  growth  of  the  sinking 
fund  is  occasioned  by  dividends  on  stock  purchased,  but,  first,  that 
capital  will  be  returned  too  suddenly  into  the  hands  of  the  stock¬ 
holder,  without  his  having  any  means  of  deriving  a  revenue  from 
it ;  and,  secondly,  that  the  remission  of  taxes,  to  the  amount  pro¬ 
bably  of  30  millions,  will  have  a  great  effect  on  the  prices  of  par¬ 
ticular  commodities,  and  will  be  very  pernicious  to  the  interest  of 
those  who  may  deal  in  or  manufacture  such  commodities. 

It  is  obvious  that  the  Commissioners  have  no  capital.  They 
receive  quarterly  or  daily  certain  sums,  arising  from  the  taxes,  which 
they  employ  in  the  redemption  of  debt.  One  portion  of  the  people 
pay  what  another  portion  receive.  If  the  payers  employed  the 
sums  paid  as  capital,  that  is  to  say,  in  the  production  of  raw  pro¬ 
duce,  or  manufactured  commodities,  and  the  receivers,  when  they 
received  it,  employed  it  in  the  same  manner,  there  would  be  little 
variation  in  the  annual  produce.  A  part  of  that  produce  might  be 
produced  by  A  instead  of  by  B  :  not  that  even  this  is  a  necessary 
consequence  ;  for  A,  when  he  received  the  money  for  his  debt, 
might  lend  it  to  B,  and  might  receive  from  him  a  portion  of  the 
produce  for  interest,  in  which  case  B  would  continue  to  employ 
the  capital  as  before.  On  the  supposition,  then,  that  the  sinking 
fund  is  furnished  by  capital  and  not  by  revenue,  no  injury  would 
result  to  the  community,  however  large  that  fund  might  be  ;  there 
might  or  might  not  be  a  transfer  of  employments,  but  the  annual 


531 


ESSAY  ON  TIIE  VENDING  SYSTEM. 


produce,  the  real  wealth  of  the  country,  would  undergo  no  deteriora¬ 
tion,  and  the  actual  amount  of  capital  employed  would  neither  be 
increased  nor  diminished.  But  if  the  payers  of  taxes,  for  the  interest 
and  sinking  fund  of  the  national  debt,  paid  them  from  revenue, 
then  they  would  retain  the  same  capital  as  before  in  active  employ¬ 
ment.  ;  and  as  this  revenue,  when  received  by  the  stockholder, 
would  be  by  him  employed  as  capital,  there  would  be,  in  conse¬ 
quence  of  this  operation,  a  great  increase  of  capital ;  every  year  an 
additional  portion  of  revenue  would  be  turned  into  capital,  which 
could  be  employed  only  in  furnishing  new  commodities  to  the 
market.  Now,  the  doubts  of  those  who  speak  of  the  mischievous 
effects  of  the  great  accumulation  of  the  sinking  fund,  proceed  from 
an  opinion  they  entertain,  that  a  country  may  possess  more  capital 
than  it  can  beneficially  employ,  and  that  there  may  be  such  a  glut 
of  commodities  that  it  would  be  impossible  to  dispose  of  them  on 
such  terms  as  to  secure  to  the  producers  any  profits  on  their  capitals. 
The  error  of  this  reasoning  has  been  made  manifest  by  M.  Say,  in 
his  able  work,  Economie  Politique ,  and  afterwards  by  Mr  Mill,  in 
his  excellent  reply  to  Mr  Spence,  the  advocate  of  the  doctrine  of 
the  Economistes.  They  show  that  demand  is  only  limited  by  pro¬ 
duction  :  whoever  can  produce  has  a  right  to  consume,  and  he  will 
exercise  his  privilege  to  the  greatest  extent.  They  do  not  deny 
that  the  demand  for  particular  commodities  is  limited,  and  there¬ 
fore  they  say  there  may  be  a  glut  of  such  commodities ;  but  in  a 
great  and  civilized  country,  wants,  either  for  objects  of  necessity 
or  of  luxury,  are  unlimited,  and  the  employment  of  capital  is  of 
equal  extent  with  our  ability  of  supplying  food  and  necessaries  for 
the  increasing  population,  which  a  continually  augmenting  capital 
would  employ.  With  every  increased  difficulty  of  producing  addi¬ 
tional  supplies  of  raw  produce  from  the  land,  corn,  and  other 
necessaries  of  the  labourer,  would  rise  ;  hence  wages  would  rise. 
A  real  rise  of  wages  is  necessarily  followed  by  a  real  fall  of  profits, 
and  therefore  when  the  land  of  a  country  is  brought  to  the  highest 
state  of  cultivation,  when  more  labour  employed  upon  it  will  not 
yield  in  return  more  food  than  what  is  necessary  to  support  the 
labourer  so  employed,  that  country  is  come  to  the  limit  of  its  in¬ 
crease  both  of  capital  and  population. 

The  richest  country  in  Europe  is  yet  far  distant  from  that  degree 
of  improvement;  but  if  any  had  arrived  at  it,  by  the  aid  of  foreign 
commerce,  even  such  a  country  could  go  on  for  an  indefinite  time 
increasing  in  wealth  and  population ;  for  the  only  obstacle  to  this 
increase  would  be  the  scarcity,  and  consequent  high  value,  of  food 
and  other  raw  produce.  Let  these  be  supplied  from  abroad  in 
exchange  for  manufactured  goods,  and  it  is  difficult  to  say  where 
the  limit  is  at  which  you  would  cease  to  accumulate  wealth,  and 
to  derive  profit  from  its  employment.  This  is  a  question  of  the 
utmost  importance  in  political  economy.  We  hope  that  the  little 
we  have  said  on  the  subject  will  be  sufficient  to  induce  those  who 


ESSAY  ON  THE  FUNDING  SYSTEM. 


535 


■wish  clearly  to  understand  the  principle,  to  consult  the  works  of  the 
able  authors  whom  we  have  named,  to  which  we  acknowledge  our¬ 
selves  so  much  indebted.  If  these  views  are  correct,  there  is 
then  no  danger  that  the  accumulated  capital  which  a  sinking  fund 
under  particular  circumstances  might  occasion,  would  not  find 
employment,  or  that  the  commodities  which  it  might  be  made  to 
produce  would  not  be  beneficially  sold,  so  as  to  afford  an  adequate 
profit  to  the  producers.  On  this  part  of  the  subject  it  is  only 
necessary  to  add,  that  there  would  be  no  necessity  for  stock¬ 
holders  to  become  farmers  or  manufacturers.  There  is  always 
to  be  found  in  a  great  country  a  sufficient  number  of  responsible 
persons,  with  the  requisite  skill,  ready  to  employ  the  accumulated 
capital  of  others,  and  to  pay  to  them  a  share  of  the  profits,  and 
which  in  all  countries  is  known  by  the  name  of  interest  for  bor¬ 
rowed  money. 

The  second  objection  to  the  indefinite  increase  of  the  sinking 
fund  remains  now  to  be  noticed.  By  the  remission  of  taxes  sud¬ 
denly  to  the  amount  probably  of  30  millions  per  annum,  a  great 
effect  would  be  produced  on  the  price  of  goods.  “  The  fate  of 
merchants,  manufacturers,  mechanics,  and  every  description  of 
dealers,  in  such  an  event,  must  be  contemplated  by  every  think¬ 
ing  man  with  alarm ;  for  should  the  national  debt  be  discharged, 
and  such  a  weight  of  taxation  taken  off  at  once,  all  the  goods 
remaining  on  hand  would  be,  comparatively  speaking,  of  no  value 
to  the  holders,  because,  having  been  purchased  or  manufactured 
Avhile  such  taxation  prevailed,  they  must  be  undersold  by  all 
those  who  might  manufacture  the  same  kind  of  goods  after  such 
taxation  had  ceased.”  It  is  only,  then,  on  the  supposition  that 
merchants,  manufacturers,  and  dealers,  would  be  affected  as  above 
described,  that  any  evil  would  result  from  the  largest  remission 
of  taxes.  It  would  not  of  course  be  said,  that  by  remitting  a  tax 
of  hi.  to  A,  10/.  to  B,  100/.  to  C,  and  so  on,  any  injury  would  be 
done  to  them.  If  they  added  these  different  sums  to  their  respec¬ 
tive  capitals,  they  would  augment  their  permanent  annual  revenue, 
and  would  be  contributino-  to  the  increase  of  the  mass  of  commo- 

O 

dities,  thereby  adding  to  the  general  abundance.  We  have  already, 
we  hope,  successfully,  shown  that  an  augmentation  of  capital  is 
neither  injurious  to  the  individual  by  whom  it  is  saved,  nor  to  the 
community  at  large ;  its  tendency  is  to  increase  the  demand  for 
labour,  and  consequently  the  population,  and  to  add  to  the  power 
and  strength  of  the  country.  But  they  will  not  add  these  respec¬ 
tive  sums  to  their  capitals ;  they  will  expend  them  as  revenue ! 
The  measure  cannot  be  said  to  be  either  injurious  to  themselves  or 
to  the  community  on  that  account.  They  annually  contributed  a 
portion  of  their  produce  to  the  stockholder  in  payment  of  debt, 
who  immediately  employed  it  as  capital;  that  portion  of  produce 
is  now  at  their  own  disposal;  they  may  consume  it  themselves 
if  they  please.  A  farmer  who  used  to  sell  a  portion  of  his  corn 


530 


ESSAY  ON  THE  FUNDING  SYSTEM. 


for  the  particular  purpose  of  furnishing  this  tax,  may  consume  this 
corn  himself;  he  may  get  the  distiller  to  make  gin  of  it,  or  the 
brewer  to  turn  it  into  beer,  or  he  may  exchange  it  for  a  portion 
of  the  cloth  which  the  clothier,  who  is  now  released  from  the  tax 
as  well  as  the  farmer,  is  at  liberty  to  dispose  of  for  any  commodity 
which  he  may  desire.  It  may  indeed  be  said,  where  is  all  this  cloth, 
beer,  gin,  &c.,  to  come  from ;  there  was  no  more  than  necessary 
for  the  general  demand  before  this  remission  of  taxes  ;  if  every  man 
is  now  to  consume  more,  from  whence  is  this  supply  to  be  obtained? 
This  is  an  objection  of  quite  an  opposite  nature  to  that  which  was 
before  urged.  Now,  it  is  said  there  would  be  too  much  demand 
and  no  additional  supply;  before,  it  was  contended  that  the  supply 
would  be  so  great  that  no  demand  would  exist  for  the  quantity 
supplied.  One  objection  is  no  better  founded  than  the  other.  The 
stockholders,  by  previously  receiving  the  payment  of  their  debt, 
and  employing  the  funds  they  received  productively,  or  lending 
them  to  some  other  persons  who  would  so  employ  them,  would 
produce  the  very  additional  commodities  which  the  society  at  large 
would  have  it  in  their  power  to  consume.  There  would  be  a  general 
augmentation  of  revenue,  and  a  general  augmentation  of  enjoy¬ 
ment  ;  and  it  must  not  for  a  moment  be  supposed  that  the  increased 
consumption  of  one  part  of  the  people  would  be  at  the  expense  of 
another  part.  The  good  would  be  unmixed,  and  without  alloy.  It 
remains,  then,  only  to  consider  the  injury  to  traders  from  the  fall 
in  the  price  of  goods;  and  the  remedy  against  this  appears  to  be 
so  very  simple,  that  it  surprises  us  that  it  should  ever  have  been 
urged  as  an  objection.  In  laying  on  a  new  tax,  the  stock  in 
hand  of  the  article  taxed  is  commonly  ascertained ;  and,  as  a  mea¬ 
sure  of  justice,  the  dealer  in  such  article  is  required  to  pay  the 
imposed  tax  on  his  stock.  Why  may  not  the  reverse  of  this  be 
done?  Why  may  not  the  tax  be  returned  to  each  individual  on  his 
stock  in  hand,  whenever  it  shall  be  thought  expedient  to  take  off 
the  tax  from  the  article  which  he  manufactures,  or  in  which  he 
deals  ?  It  would  only  be  necessary  to  continue  the  taxes  for  a 
very  short  time  for  this  purpose.  On  no  view  of  this  question  can 
we  see  any  validity  in  the  arguments  which  we  have  quoted,  and 
which  were  so  particularly  insisted  on  by  Mr  Vansittart. 

There  are  some  persons  who  think  that  a  sinking  fund,  even 
when  strictly  applied  to  its  object,  is  of  no  national  benefit  what¬ 
ever.  The  money  which  is  contributed,  they  say,  would  be  more 
productively  employed  by  the  payers  of  the  taxes  than  by  the  com¬ 
missioners  of  the  sinking  fund.  The  latter  purchase  stock  with  it, 
which  probably  does  not  yield  5  per  cent. ;  the  former  would  obtain 
from  the  employment  of  the  same  capital  much  more  than  5  per 
cent.,  consequently  the  country  would  be  enriched  by  the  difference. 
There  would  be  in  the  latter  case  a  larger  nett  supply  of  the  pro¬ 
duce  of  our  land  and  labour,  and  that  is  the  fund  from  which  ulti¬ 
mately  all  our  expenditure  must  be  drawn.  Those  who  maintain 


ESSAY  OX  THE  FUNDING  SYSTEM. 


537 


this  opinion  do  not  see  that  the  commissioners  merely  receive 
money  from  one  class  of  the  community,  and  pay  it  to  another 
class,  and  that  the  real  question  is,  Which  of  these  two  classes 
will  employ  it  most  productively  ?  Forty  millions  per  annum  are 
raised  by  taxes,  of  which  20  millions,  we  will  suppose,  is  paid  for 
sinking  fund,  and  20  millions  for  interest  of  debt.  After  a  year’s 
purchase  is  made  by  the  commissioners,  this  40  millions  will  be 
divided  differently;  19  millions  will  be  paid  for  interest,  and  21 
millions  for  sinking  fund;  and  so  from  year  to  year,  though  40 
millions  is  always  paid  on  the  whole,  a  less  and  less  portion  of  it 
will  be  paid  for  interest,  and  a  larger  portion  for  sinking  fund,  till 
the  commissioners  have  purchased  the  whole  amount  of  stock, 
and  then  the  whole  40  millions  will  be  in  the  hands  of  the  commis¬ 
sioners.  The  sole  question,  then,  with  regard  to  profit  is,  whether 
those  who  pay  this  40  millions,  or  those  who  receive  it,  will  employ 
it  most  productively;  the  commissioners,  in  fact,  never  employing 
it  all,  their  business  being  to  transfer  it  to  those  who  will  employ 
it.  Now,  of  this  we  are  quite  certain,  that  all  the  money  received 
by  the  stockholder  in  return  for  his  stock  must  be  employed  as 
capital ;  for  if  it  were  not  so  employed,  he  would  be  deprived  of 
his  revenue,  on  which  he  had  habitually  depended.  If,  then,  the 
taxes  which  are  paid  towards  the  sinking  fund  be  derived  from 
the  revenue  of  the  country,  and  not  from  its  capital,  by  this  opera¬ 
tion  a  portion  of  revenue  is  yearly  realised  into  capital,  and  con¬ 
sequently  the  whole  revenue  of  the  society  is  increased ;  but  it 
might  have  been  realised  into  capital  by  the  payer  of  the  tax 
if  there  had  been  no  sinking  fund,  and  he  bad  been  allowed  to 
retain  the  money  to  his  own  use.  It  might  so,  and  if  it  had  been 
so  disposed  of,  there  can  be  no  advantage  in  respect  to  the  accumu¬ 
lation  of  the  wealth  of  the  whole  society  by  the  establishment  of 
the  sinking  fund ;  but  it  is  not  so  probable  that  the  payer  of  the 
tax  would  make  this  use  of  it  as  the  receiver.  The  receiver,  when 
he  gets  paid  for  his  stock,  only  substitutes  one  capital  for  another  ; 
and  he  is  accustomed  to  look  to  his  capital  for  all  his  yearly  income. 
The  payer  will  have  all  that  he  paid  in  addition  to  his  former 
revenue;  if  the  sinking  fund  be  discontinued  he  may  indeed  realise  it 
into  capital,  but  he  may  also  use  it  as  revenue,  increasing  his  expen¬ 
diture  on  wine,  houses,  horses,  clothes,  &c.  The  payer  might,  too, 
have  paid  it  from  his  capital ;  and  therefore  the  employment  of  one 
capital  might  be  substituted  for  another.  In  this  case,  too,  no 
advantage  arises  from  the  sinking  fund,  as  the  national  wealth 
would  accumulate  as  rapidly  without  it  as  with  it  ;  but  it  any 
portion  of  the  taxes  paid  expressly  for  the  sinking  fund  be 
paid  from  revenue,  and  which,  if  not  so  paid,  would  have  been 
expended  as  revenue,  then  there  is  a  manifest  advantage  in  the 
sinking  fund,  as  it  tends  to  increase  the  annual  produce  of 
our  land  and  labour;  and  as  we  cannot  but  think  that  this  would 
be  its  operation,  we  are  clearly  of  opinion  that  a  sinking 


538 


ESSAY  ON  THE  FUNDING  SYSTEM. 


fund,  honestly  applied,  is  favourable  to  the  accumulation  of 
wealth. 

I)r  Hamilton  has  followed  Dr  Price  in  insisting  much  ou  the 
disadvantage  of  raising  loans  during  war  in  a  3  per  cent,  stock,  and 
not  in  a  5  per  cent,  stock.  In  the  former,  a  great  addition  is  made 
to  the  nominal  capital,  which  is  generally  redeemed  during  peace 
at  a  greatly  advanced  price.  Three  per  cents,  which  were  sold  at  GO 
will  probably  be  repurchased  at  80,  and  may  come  to  be  bought 
at  100;  whereas  in  5  per  cents,  there  would  be  little  or  no  increase 
of  nominal  capital,  and  as  all  the  stocks  are  redeemable  at  par, 
they  would  be  paid  oft’  with  very  little  loss.  The  correctness  of 
this  observation  must  depend  on  the  relative  prices  of  these  two 
stocks.  During  the  war  in  1708,  the  3  per  cents,  were  at  50,  while 
the  5  per  cents,  were  at  73;  and  at  all  times  the  5  per  cents,  bear 
a  very  low  relative  price  to  the  3  per  cents.  Here,  then,  is  one 
disadvantage  to  be  put  against  another,  and  it  must  depend  upon 
the  degree  in  which  the  prices  of  the  3  per  cents,  and  5  per 
cents,  (lifter,  whether  it  be  more  desirable  to  raise  the  loan  in  the 
one  or  in  the  other.  AVe  have  little  doubt,  that  during  many 
periods  of  the  war,  there  would  have  been  a  decided  disadvantage 
in  making  the  loan  in  5  per  cent,  stock  in  preference  to  3  per  cent, 
stock.  The  market  in  5  per  cent,  stock,  too,  is  limited;  a  sale 
cannot  be  forced  in  it  without  causing  a  considerable  fall,  a  circum¬ 
stance  known  to  the  contractors,  and  against  which  they  would 
naturally  take  some  security  in  the  price  which  they  bid  for  a  large 
loan  if  in  that  stock.  A  premium  of  2  per  cent,  on  the  market 
price  may  appear  to  them  sufficient  to  compensate  them  for  their 
risk  in  a  loan  in  3  per  cent,  stock;  they  may  require  one  of  5  per 
cent,  to  protect  them  against  the  dangers  they  apprehend  from 
taking  the  same  loan  in  a  5  per  cent,  stock. 

II.  After  having  duly  considered  the  operation  of  a  sinking  fund 
derived  from  annual  taxes,  we  come  now  to  the  consideration  of 
the  best  mode  of  providing  for  our  annual  expenditure,  both  in 
Avar  and  peace;  and  further,  to  examine  whether  a  country  can 
have  any  security  that  a  fund  raised  for  the  purpose  of  paying  debt 
will  not  be  misapplied  by  ministers,  and  be  really  made  the  instru¬ 
ment  for  creating  neAV  debt,  so  as  never  to  afford  a  rational  hope 
that  any  progress  whatever  will  permanently  be  made  in  the  reduc¬ 
tion  of  debt. 

Suppose  a  country  to  be  free  from  debt,  and  a  war  to  take  place 
Avhich  should  involve  it  in  an  annual  additional  expenditure  of  20 
millions — there  are  three  modes  by  which  this  expenditure  may  be 
provided;  first,  taxes  may  be  raised  to  the  amount  of  20  millions 
per  annum,  from  which  the  country  would  be  totally  freed  on  the 
return  of  peace;  or,  secondly,  the  money  might  be  annually  bor¬ 
rowed  and  funded,  in  which  case,  if  the  interest  agreed  upon  was 
5  per  cent.,  a  perpetual  charge  of  1  million  per  annum  taxes  would 
be  incurred  for  the  first  year’s  expense,  from  which  there  would  be 


ESSAY  ON  THE  FUNDING  SYSTEM. 


53Jj 

no  relief  during  peace,  or  in  any  future  war, — of  an  additional 
million  for  the  second  year’s  expense,  and  so  on  for  every  year 
that  the  war  might  last.  At  the  end  of  twenty  years,  if  the  war 
lasted  so  long,  the  country  would  be  perpetually  encumbered  with 
taxes  of  20  millions  per  annum,  and  would  have  to  repeat  the  same 
course  on  the  recurrence  of  any  new  war.  The  third  mode  of  pro¬ 
viding  for  the  expenses  of  the  war  would  be  to  borrow  annually  the 
20  millions  required  as  before,  but  to  provide  by  taxes  a  fund,  in 
addition  to  the  interest,  which,  accumulating  at  compound  interest, 
should  finally  be  equal  to  the  debt.  In  the  case  supposed,  if  money 
was  raised  at  5  per  cent.,  and  a  sum  of  200,000/.  per  annum  in 
addition  to  the  million  for  interest  were  provided,  it  would  accumu¬ 
late  to  20  millions  in  forty-five  years;  and  by  consenting  to  raise 
1,200,000/.  per  annum  by  taxes  for  every  loan  of  20  millions,  each 
loan  would  be  paid  off  in  forty-five  years  from  the  time  of  its 
creation;  and  in  forty-five  years  from  the  termination  of  the  war, 
if  no  new  debt  were  created,  the  whole  would  be  redeemed,  and 
the  whole  of  the  taxes  would  be  repealed. 

Of  these  three  modes  we  are  decidedly  of  opinion  that  the 
preference  should  be  given  to  the  first.  The  burdens  of  the  war 
are  undoubtedly  great  during  its  continuance,  but  at  its  termination 
they  cease  altogether.  When  the  pressure  of  the  war  is  felt  at  once, 
without  mitigation,  we  shall  be  less  disposed  wantonly  to  engage 
in  an  expensive  contest,  and  if  engaged  in  it,  we  shall  be  sooner 
disposed  to  get  out  of  it,  unless  it  be  a  contest  for  some  great, 
national  interest.  In  point  of  economy  there  is  no  real  difference 
in  either  of  the  modes,  for  20  millions  in  one  payment,  1  million 
per  annum  for  ever,  or  1,200,000/.  for  forty-five  years,  are  precisely 
of  the  same  value  ;  but  the  people  who  pay  the  taxes  never  so 
estimate  them,  and  therefore  do  not  manage  their  private  affairs 
accordingly.  We  are  too  apt  to  think  that  the  war  is  burdensome 
only  in  proportion  to  what  we  are  at  the  moment  called  to  pay  for 
it  in  taxes,  without  reflecting  on  the  probable  duration  of  such 
taxes.  It  would  be  difficult  to  convince  a  man  possessed  of  20,000/., 
or  any  other  sum,  that  a  perpetual  payment  of  50/.  per  annum  was 
equally  burdensome  with  a  single  tax  of  1000/.  He  would  have 
some  vague  notion  that  the  50/.  per  annum  would  be  paid  by 
posterity,  and  would  not  be  paid  by  him ;  but  if  be  leaves  his 
fortune  to  his  son,  and  leaves  it  charged  with  this  perpetual  tax, 
where  is  the  difference  whether  he  leaves  him  20,000/.  with  the 
tax,  or  19,000/.  without  it  ?  This  argument  of  charging  posterity 
with  the  interest  of  our  debt,  or  of  relieving  them  from  a  portion 
of  such  interest,  is  often  used  by  otherwise  well  informed  people, 
but  we  confess  we  see  no  weight  in  it.  It  may  indeed  be  said 
that  the  wealth  of  the  country  may  increase,  and  as  a  portion  of 
the  increased  wealth  will  have  to  contribute  to  the  taxes,  the  pro¬ 
portion  falling  on  the  present  amount  of  wealth  will  be  less,  and 
thus  posterity  will  contribute  to  our  present  expenditure.  That 


54U 


ESSAY  ON  TIIE  FUNDING  SYSTEM. 


this  may  be  so  is  true,  but  it  may  also  be  otherwise  ;  the  wealth  of 
the  country  may  diminish,  individuals  may  withdraw  from  a  country 
heavily  taxed,  and  therefore  the  property  retained  in  the  country 
may  pay  more  than  the  just  equivalent  which  would  at  the  present 
time  be  received  from  it.  That  an  annual  tax  of  50/.  is  not  deemed 
the  same  in  amount  as  1000/.  ready  money,  must,  have  been  observed 
by  every  body.  If  an  individual  were  called  upon  to  pay  1000/. 
to  the  income-tax,  he  would  probably  endeavour  to  save  the  whole 
of  it  from  his  income  ;  he  would  do  no  more  if,  in  lieu  of  this  war- 
tax,  a  loan  had  been  raised,  for  the  interest  of  which  he  would 
have  been  called  upon  to  pay  only  50/.  income-tax.  The  war-taxes, 
then,  are  more  economical,  for  when  they  are  paid  an  effort  is 
made  to  save  to  the  amount  of  the  whole  expenditure  of  the  war, 
leaving  the  national  capital  undiminished.  In  the  other  case,  an 
effort  is  only  made  to  save  to  the  amount  of  the  interest  of  such 
expenditure,  and  therefore  the  national  capital  is  diminished  in 
amount.  The  usual  objection  made  to  the  payment  of  the  larger 
tax  is,  that  it  could  not  be  conveniently  paid  by  manufacturers 
and  landholders,  for  they  have  not  large  sums  of  money  at  their 
command.  We  think  that  great  efforts  would  be  made  to  save 
the  tax  out  of  their  income,  in  which  case  they  could  obtain 
the  money  from  this  source  ;  but  suppose  they  could  not,  what 
should  hinder  them  from  selling  a  part  of  their  property  for  money, 
or  of  borrowing  it  at  interest  ?  That  there  are  persons  disposed  to 
lend  is  evident  from  the  facility  with  which  Government  raises  its 
loans.  Withdraw  this  great  borrower  from  the  market,  and  private 
borrowers  would  be  readily  accommodated.  By  wise  regulations 
and  good  laws  the  greatest  facilities  and  security  might  be  afforded 
to  individuals  in  such  transactions.  In  the  case  of  a  loan  A  advances 
the  money,  and  B  pays  the  interest,  and  every  thing  else  remains 
as  before.  In  the  case  of  war-taxes  A  would  still  advance  the 
money  and  B  pay  the  interest,  only  with  this  difference,  he  would 
pay  it  directly  to  A  ;  now  he  pays  it  to  Government,  and  Govern¬ 
ment  pays  it  to  A. 

These  large  taxes,  it  may  be  said,  must  fall  on  property,  which 
the  smaller  taxes  now  do  not  exclusively  do.  Those  who  are  in 
professions,  as  well  as  those  who  live  from  salaries  and  wages,  and 
who  now  contribute  annually  to  the  taxes,  could  not  make  a  large 
ready  money  payment,  and  they  would  therefore  be  benefited  at  the 
expense  of  the  capitalist  and  landholder.  We  believe  that  they 
would  be  very  little,  if  at  all  benefited  by  the  system  of  war-taxes. 
Fees  to  professional  men,  salaries,  and  wages,  are  regulated  by  the 
prices  of  commodities,  and  by  the  relative  situation  of  those  who 
pay  and  of  those  who  receive  them.  A  tax  of  the  nature  proposed, 
if  it  did  not  disturb  prices,  would,  however,  change  the  relation 
between  these  classes,  and  a  new  arrangement  of  fees,  salaries,  and 
wages  would  take  place,  so  that  the  usual  level  would  be  restored. 

The  reward  that  is  paid  to  professors,  &c.,  is  regulated,  like 


ESSAY  ON  THE  FUNDING  SYSTEM. 


541 


every  thing  else,  by  demand  and  supply.  What  produces  the 
supply  of  men,  with  certain  qualifications,  is  not  any  particular 
sum  of  money,  but  a  certain  relative  position  in  society.  If  you 
diminish,  by  additional  taxes,  the  incomes  of  landlords  and  capita¬ 
lists,  leaving  the  pay  of  professions  the  same,  the  relative  position 
of  professions  would  be  raised — an  additional  number  of  persons 
would  therefore  be  enticed  into  those  lines,  and  the  competition 
would  reduce  the  pay. 

The  greatest  advantage  that  would  attend  war-taxes  would  be 
the  little  permanent  derangement  that  they  would  cause  to  the 
industry  of  the  country.  The  prices  of  our  commodities  would 
not  be  disturbed  by  taxation,  or  if  they  were,  they  would  only  be 
so  during  a  period  when  every  thing  is  disturbed  by  other  causes 
during  war.  At  the  commencement  of  peace  every  thing  would 
be  at  its  natural  price  again,  and  no  inducement  would  be  afforded 
to  us  by  the  direct  effect,  and  still  less  by  the  indirect  effect  of 
taxes  on  various  commodities,  to  desert  employments  in  which  we 
have  peculiar  skill  and  facilities,  and  engage  in  others  in  which  the 
same  skill  and  facilities  are  wanting.  In  a  state  of  freedom  every 
man  naturally  engages  himself  in  that  employment  for  which  he  is 
best  fitted,  and  the  greatest  abundance  of  products  is  the  result. 
An  injudicious  tax  may  induce  us  to  import  what  we  should  other¬ 
wise  have  produced  at  home,  or  to  export  what  we  should  other¬ 
wise  have  received  from  abroad  ;  and  in  both  cases  we  shall  receive, 
besides  the  inconvenience  of  paying  the  tax,  a  less  return  for  a 
given  quantity  of  our  labour  than  what  that  labour  would,  if 
unfettered,  have  produced.  Under  a  complicated  system  of  taxa¬ 
tion  it  is  impossible  for  the  wisest  legislature  to  discover  all  the 
effects,  direct  and  indirect,  of  its  taxes ;  and  if  it  cannot  do  this, 
the  industry  of  the  country  will  not  be  exerted  to  the  greatest 
advantage.  By  war-taxes  we  should  save  many  millions  in  the 
collection  of  taxes.  We  might  get  rid  of  at  least  some  of  the 
expensive  establishments,  and  the  army  of  officers  which  they 
employ  would  be  dispensed  with.  There  would  be  no  charges  for 
the  management  of  debt.  Loans  would  not  be  raised  at  the  rate 
of  50/.  or  60/.  for  a  nominal  capital  of  100/.,  to  be  repaid  at  70/., 
80/.,  or  possibly  at  100/. ;  and,  perhaps,  what  is  of  more  importance 
than  all  these  together,  we  might  get  rid  of  those  great  sources  of 
the  demoralization  of  the  people,  the  Customs  and  Excise.  In  every 
view  of  this  question  we  come  to  the  same  conclusion,  that  it  would 
be  a  great  improvement  in  our  system  for  ever  to  get  rid  of  the 
practice  of  funding.  Let  us  meet  our  difficulties  as  they  arise,  and 
keep  our  estates  free  from  permanent  encumbrances,  of  the  weight 
of  which  we  are  never  truly  sensible  till  we  are  involved  in  them 
past  remedy. 

We  are  now  to  compare  the  other  two  modes  of  defraying  the 
expenses  of  a  war,  one  by  borrowing  the  capital  expended,  and  pro¬ 
viding  annua]  taxes  permanently  for  the  payment  of  the  interest; 


542 


ESSAY  ON  THE  FUNDING  SYSTEM. 


the  other  by  borrowing  the  capital  expended,  and,  besides  providing 
the  interest  by  annual  taxes,  raising  by  the  same  mode,  an  addi¬ 
tional  revenue  (and  which  is  called  the  sinking  fund),  with  a  view, 
within  a  certain  determinate  time,  to  redeem  the  original  debt,  and 
get  rid  entirely  of  the  taxes. 

Under  the  firm  conviction  that  nations  will  at  last  adopt  the  plan 
of  defraying  their  expenses,  ordinary  and  extraordinary,  at  the  time 
they  are  incurred,  we  are  favourable  to  every  plan  which  shall 
soonest  redeem  us  from  debt ;  but  then  we  must  be  convinced  that 
the  plan  is  effective  for  the  object.  This,  then,  is  the  place  to 
examine  whether  we  have  or  can  have  any  security  for  the  due 
application  of  the  sinking  fund  to  the  payment  of  debt. 

When  Mr  Pitt,  in  1786,  established  the  sinking  fund,  he  Mas 
aware  of  the  danger  of  entrusting  it  to  ministers  and  Parliament ; 
and  therefore  provided  that  the  sums  applicable  to  the  sinking  fund 
should  be  paid  by  the  Exchequer  into  the  hands  of  commissioners, 
by  quarterly  payments,  who  should  be  required  to  invest  equal  sums 
of  money  in  the  purchase  of  stock,  on  four  days  in  each  week,  or 
about  fifty  days  in  each  quarter.  The  commissioners  named  were, 
the  Speaker  of  the  House  of  Commons,  the  Chancellor  of  the  Ex¬ 
chequer,  the  Master  of  the  Rolls,  the  Accountant-General  of  the 
Court  of  Chancery,  and  the  Governor  and  Deputy-Governor  of  the 
Bank.  He  thought  that,  under  such  management,  there  could  be 
no  misapplication  of  the  funds,  and  he  thought  correctly,  for  the 
commissioners  have  faithfully  fulfilled  the  trust  reposed  in  them.  In 
proposing  the  establishment  of  a  sinking  fund  to  Parliament  in 
1786,  Mr  Pitt  said,  “  With  regard  to  preserving  the  fund  to  be 
invariably  applied  to  the  diminution  of  the  debt  inalienable,  it  was 
the  essence  of  his  plan  to  keep  that  sacred,  and  most  effectual^  so 
in  time  of  war.  He  must  contend,  that  to  suffer  the  fund  at  any  time, 
or  on  any  pretence,  to  be  diverted  from  its  proper  object,  would  be 
to  ruin,  defeat,  and  overturn  his  plan.  He  hoped,  therefore,  when 
the  bill  he  should  introduce  should  pass  into  a  lawT,  that  house  would 
hold  itself  solemnly  pledged  not  to  listen  to  a  proposal  for  its  repeal 
on  any  pretence  u’hatever.” 

“If  this  million,  to  be  so  applied,  is  laid  out  with  its  growing 
interest,  it  will  amount  to  a  very  great  sum  in  a  period  that  is  not 
very  long  in  the  life  of  an  individual,  and  but  an  hour  in  the  existence 
of  a  great  nation ;  and  this  M  ill  diminish  the  debt  of  this  country 
so  much  as  to  prevent  the  exigencies  of  war  from  raising  it  to  the 
enormous  height  it  has  hitherto  done.  In  the  period  of  twenty- 
eight  years,  the  sum  of'  a  million,  annually  improved,  would  amount 
to  4  millions  per  annum ;  but  care  must  be  taken  that  this  fund  be 
not  broken  in  upon  :  this  has  hitherto  been  the  bane  of  this  country; 
for  if  the  original  sinking  fund  had  been  properly  preserved,  it  is 
easy  to  be  proved  that  our  debts,  at  this  moment,  u’ould  not  have 
been  very  burdensome:  this  has  hitherto  been  in  vain  endeavoured  to 
be  vrevented  by  acts  of  Parliament ;  the  minister  has  uniformly,  when 


ESSAY  ON  THE  FUNDING  SYSTEM. 


543 


it  suited  his  convenience,  gotten  hold  of  this  sum,  which  ought  to 
have  been  regarded  as  most  sacred.  What,  then,  is  the  way  ot 
preventing  this?  The  plan  I  mean  to  propose  is  this,  that  this  sum 
be  vested  in  certain  commissioners,  to  be  by  them  applied  quarterly 
to  buy  up  stock  ;  by  this  means,  no  sum  so  great  will  ever  be  ready 
to  be  seized  upon  on  any  occasion,  and  the  fund  will  go  on  without 
interruption.  Long  and  very  long  has  this  country  struggled  under  its 
heavy  load,  without  any  prospect  of  being  relieved  ;  but  it  may  now 
look  forward  to  an  object  upon  which  the  existence  of  this  country  de¬ 
pends  ;  it  is  therefore  proper  it  should  be  fortified  as  much  as  possible 
against  alienation.  By  this  manner  of  paying  250,000/.  quarterly 
into  the  hands  of  commissioners,  it  would  make  it  impossible  to  take 
it  by  stealth;  and  the  advantage  would  be  too  well  felt  ever  to 
suffer  a  public  act.  for  that  purpose.  A  minister  could  not  have  the 
confidence  to  come  to  this  house  and  desire  the  repeal  of  so  beneficial 
a  law,  which  tended  so  directly  to  relieve  the  people  from  burden.” 

Mr  Pitt  flattered  himself  most  strangely,  that  he  had  found  a 
remedy  for  the  difficulty  which  “  had  hitherto  been  the  bane  of 
this  country  he  thought  he  had  discovered  means  for  preventing 
“  ministers,  when  it  suited  their  convenience,  from  getting  hold  of 
this  sum,  which  ought  to  be  regarded  as  most  sacred.”  With  the 
knowledge  of  Parliament  which  he  had,  it  is  surprising  that  he 
should  have  relied  so  firmly  on  the  resistance  which  the  House  ot 
Commons  would  offer  to  any  plan  of  ministers  for  violating  the 
sinking  fund.  Ministers  have  never  desired  the  partial  repeal  of 
this  law,  without  obtaining  a  ready  compliance  from  Parliament. 

We  have  already  shown,  that  in  1807,  one  Chancellor  of  the 
Exchequer  proposed  to  relieve  the  country  from  taxation,  with  a 
very  slight  exception,  for  several  years  together,  while  we  were, 
during  war,  keeping  up,  if  not  increasing,  our  expenditure,  and 
supplying  it  by  means  of  annual  loans.  What  is  this  but  disposing 
of  a  fund  which  ought  to  have  been  regarded  as  most  sacred  ? 

In  1800  another  Chancellor  of  the  Exchequer  raised  a  loan,  with¬ 
out  raising  any  additional  taxes  to  pay  the  interest  of  it,  but  pledged 
a  portion  of  the  war-taxes  for  that  purpose,  thereby  rendering  an 
addition  to  that  amount  necessary  to  the  loan  of  the  following  and 
every  succeeding  year.  Was  not  this  disposing  of  the  sinking 
fund  by  stealth,  and  accumulating  debt  at  compound  interest  ? 
Another  Chancellor  of  the  Exchequer,  in  1813,  proposed  a  partial 
repeal  of  the  law,  by  which  7  millions  per  annum  of  the  sinking  fund 
was  placed  at  his  disposal,  and  which  lie  has  employed  in  providing 
for  the  interest  of  new  debt.  This  was  done  with  the  sanction  of 
Parliament,  and,  as  we  apprehend,  in  direct  violation  of  all  the 
laws  which  had  before  been  passed  regarding  the  sinking  fund. 
But  what  has  become  of  the  remainder  of  this  fund,  after  deducting 
the  7  millions  taken  from  it  by  the  act  of  1813?*  It  should  now 

*  Some  of  the  following  observations  refer  to  the  period  when  this  article  was  origi 
tally  composed. — Ed. 


544 


ESSAY  ON  THE  FUNDING  SYSTEM. 


be  16  millions,  and  at  that  amount  it  was  returned  in  the  annual 
finance  accounts  last  laid  before  Parliament.  The  finance  com¬ 
mittee  appointed  by  the  House  of  Commons  did  not  fail  to  see 
that  nothing  can  be  deemed  an  efficient  fund  for  the  redemption 
of  debt  in  time  of  peace,  but  such  as  arises  from  an  excess  of 
revenue  above  expenditure  ;  and  as  that  excess,  under  the  most 
favourable  view,  was  not  quite  2  millions,  they  considered  that 
sum  as  the  real  efficient  sinking  fund,  which  was  now  applicable  to 
the  discharge  of  debt.  If  the  act  of  1802  had  been  complied  with, 
if  the  intentions  of  Mr  Pitt  had  been  fulfilled,  we  should  now  have 
had  a  clear  excess  of  revenue  of  above  20  millions,  applicable  to 
the  payment  of  the  debt ;  as  it  is,  we  have  2  millions  only,  and  if 
we  ask  ministers  what  has  become  of  the  remaining  18  millions, 
they  show  us  an  expensive  peace  establishment,  which  they  have 
no  other  means  of  defraying  but  by  drafts  on  this  fund,  or  several 
hundred  millions  of  3  per  cents.,  on  which  it  is  employed  in  dis¬ 
charging  the  interest.  If  ministers  had  not  had  such  an  amount 
of  taxes  to  depend  on,  would  they  have  ventured,  year  after  year, 
to  encounter  a  deficiency  of  revenue  below  expenditure,  for  several 
years  together,  of  more  than  12  millions  ?  It  is  true  that  the 
measures  of  Mr  Pitt  locked  it  up  from  their  immediate  seizure, 
but  they  knew  it  was  in  the  hands  of  the  Commissioners,  and  pre¬ 
sumed  as  much  upon  it,  and  justly,  with  the  knowledge  they  had 
of  Parliament,  as  if  it  had  been  in  their  own.  They  considered 
the  Commissioners  as  their  trustees,  accumulating  money  for  their 
benefit,  and  of  which  they  knew  that  they  might  dispose  whenever 
t hey  should  consider  that  the  urgency  of  the  case  required  it. 
They  seem  to  have  made  a  tacit  agreement  with  the  Commissioners, 
that  they  should  accumulate  12  millions  per  annum  at  compound 
interest,  while  they  themselves  accumulated  an  equal  amount  of 
debt,  also  at  compound  interest.  'The  facts  are  indeed  no  longer 
denied.  In  the  last  session  of  Parliament,  for  the  first  time,  the 
delusion  was  acknowledged  by  ministers,  after  it  had  become  mani¬ 
fest  to  every  other  person,  but  yet  it  is  avowed  to  be  their  intention 
to  go  on  with  this  nominal  sinking  fund,  raising  a  loan  every  year 
for  the  difference  between  its  real  and  nominal  amount,  and  letting 
the  Commissioners  subscribe  to  it.  On  what  principle  this  can  be 
done  it  would  be  difficult  to  give  any  rational  account.  Perhaps 
it  may  be  said  that  it  would  be  a  breach  of  faith  to  the  stockholder 
to  take  away  the  sinking  fund,  but  is  it  not  equally  a  breach  of 
faith  if  the  Government  itself  sells  to  the  Commissioners  the 
greatest  part  of  the  stock  which  they  buy  ?  The  stockholder  wants 
something  substantial  and  real  to  be  done  for  him,  and  not  any 
thing  deceitful  and  delusive.  Disguise  it  as  you  will,  if  of  14 
millions  to  be  invested  by  the  Commissioners  in  time  of  peace,  the 
stock  which  12  millions  will  purchase  is  sold  by  the  Government 
itself,  which  creates  it  for  the  very  purpose  of  obtaining  these  12 
millions,  and  only  stock  for  2  millions  is  purchased  in  the  market, 


ESSAY  ON  THE  FUNDING  SYSTEM. 


545 

anti  no  taxes  for  sinking  fund  or  interest  are  provided  for  the  12 
millions  which  Government  takes ;  the  result  is  precisely  the  same 
to  the  stockholder,  and  to  every  one  concerned,  as  if  the  sinking 
fund  was  reduced  to  2  millions.  It  is  utterly  unworthy  of  a  great, 
country  to  countenance  such  pitiful  shifts  and  evasions. 

The  sinking  fund,  then,  has,  instead  of  diminishing  the  debt, 
greatly  increased  it.  The  sinking  fund  has  encouraged  expendi¬ 
ture.  If,  during  war,  a  country  spends  20  millions  per  annum,  in 
addition  to  its  ordinary  expenditure,  and  raises  taxes  only  for  the 
interest,  it  will  in  twenty  years  accumulate  a  debt  of  400  millions, 
and  its  taxes  will  increase  to  20  millions  per  annum.  If,  in  addi¬ 
tion  to  the  million  per  annum,  taxes  of  200,000/.  were  raised  for 
a  sinking  fund,  and  regularly  applied  to  the  purchase  of  stock,  the 
taxes,  at  the  end  of  twenty  years,  would  be  24  millions,  and  its  debt 
only  342  millions  ;  for  58  millions  will  have  been  paid  off  by  the 
sinking  fund ;  but  if  at  the  end  of  this  period  new  debt  shall  be 
contracted,  and  the  sinking  fund  itself,  with  all  its  accumulations, 
amounting  to  6,940,000/.,  be  absorbed  in  the  payment  of  interest 
on  such  debt,  the  whole  amount  of  debt  will  be  538  millions,  ex¬ 
ceeding  that  which  would  have  existed  if  there  had  been  no  sinking 
fund  by  138  millions.  If  such  an  additional  expenditure  were 
necessary,  provision  should  be  made  for  it  without  any  interference 
with  the  sinking  fund.  If,  at  the  end  of  the  war,  there  is  not  a 
clear  surplus  of  revenue  above  expenditure  of  6,940,000/.  on  the 
above  supposition,  there  is  no  use  whatever  in  persevering  in  a 
system  which  is  so  little  adequate  to  its  object.  After  all  our  ex¬ 
perience,  however,  we  are  again  toiling  to  raise  a  sinking  fund ; 
and  in  the  last  session  of  Parliament  3  millions  of  new  taxes  were 
voted,  with  the  avowed  object  of  raising  the  remnant  of  our  sinking 
fund,  now  reduced  to  2  millions,  to  5  millions.  Is  it  rash  to 
prognosticate  that  this  sinking  fund  will  share  the  fate  of  all  those 
which  have  preceded  it  ?  Probably  it  will  accumulate  for  a  few 
years,  till  we  are  engaged  in  some  new  contest,  when  ministers, 
finding  it  difficult  to  raise  taxes  for  the  interest  of  loans,  will  silently 
encroach  on  this  fund ;  and  we  shall  be  fortunate  if,  in  their  next 
ari’angement,  we  shall  be  able  to  preserve  out  of  its  wreck  an  amount 
so  large  as  2  millions. 

It  is,  we  think,  sufficiently  proved  that  no  securities  can  be  given 
by  ministers  that  the  sinking  fund  shall  be  faithfully  devoted  to  the 
payment  of  debt,  and  without  such  securities  we  should  be  much 
better  without  such  a  fund.  To  pay  off  the  whole,  or  a  great  por¬ 
tion  of  our  debt,  is,  in  our  estimation,  a  most  desirable  object,  if,  at 
the  same  time,  we  acknowledged  the  evils  of  the  funding  system, 
and  resolutely  determined  to  carry  on  our  future  contests  without 
having  recourse  to  it.  This  cannot,  or  rather  will  not,  be  done  by 
a  sinking  fund  as  at  present  constituted,  nor  by  any  other  that  we 
can  suggest ;  but  if,  without  raising  any  fund,  the  debt  were  paid 
by  a  tax  on  property,  once  for  all  it  would  effect  its  object.  Its 

M  M 


546 


KSSAY  ON  TI1E  FUNDING  SYSTEM. 


operation  might  be  completed  in  two  or  three  years  during  peace, 
and  if  we  mean  honestly  to  discharge  the  debt,  we  do  not  see  any 
other  mode  of  accomplishing  it.  The  objections  to  this  plan  are  the 
same  as  those  which  we  have  already  attempted  to  answer  in  speak¬ 
ing  of  war-taxes.  The  stockholders,  being  paid  off,  would  have  a 
large  mass  of  property,  for  which  they  would  be  eagerly  seeking 
employment.  Manufacturers  and  landholders  would  -want  large 
sums  for  their  payments  into  the  Exchequer.  These  two  parties 
w'ould  not  foil  to  make  an  arrangement  with  each  other,  by  which 
one  party  would  employ  their  money,  and  the  other  raise  it.  They 
might  do  this  by  loan,  or  by  sale  and  purchase,  as  they  might  think 
it  most  conducive  to  their  respective  interests  ;  with  this  the  State 
would  have  nothing  to  do.  Thus,  by  one  great  effort,  we  should 
get  rid  of  one  of  the  most  terrible  scourges  which  was  ever  invented 
to  afflict  a  nation  ;  and  our  commerce  would  be  extended  without 
being  subject  to  all  the  vexatious  delays  and  interruptions  which 
our  present  artificial  system  imposes  upon  it. 

There  cannot  be  a  greater  security  for  the  continuance  of  peace, 
than  the  imposing  on  ministers  the  necessity  of  applying  to  the 
people  for  taxes  to  support  a  war.  Suffer  this  sinking  fund  to 
accumulate  during  peace  to  any  considerable  sum,  and  very  little 
provocation  would  induce  them  to  enter  into  a  new  contest.  They 
would  know  that,  by  a  little  management,  they  could  make  the 
sinking  fund  available  to  the  raising  of  a  new  supply,  instead  of 
being  available  to  the  payment  of  the  debt.  The  argument  is  now 
common  in  the  mouths  of  ministers,  when  they  wish  to  lay  on  new 
taxes,  for  the  purpose  of  creating  a  new  sinking  fund,  in  lieu  of 
one  which  they  have  just  spent,  to  say,  “  It  w  ill  make  foreign  coun¬ 
tries  respect  us ;  they  will  be  afraid  to  insult  or  provoke  us,  when 
they  know  that  we  are  possessed  of  so  powerful  a  resource.”  What 
do  they  mean  by  this  argument,  if  the  sinking  fund  be  not  considered 
by  them  as  a  war  fund,  on  which  they  can  draw  in  support  of  the 
contest  ?  It  cannot,  at  one  and  the  same  time,  be  employed  in  the 
annoyance  of  an  enemy,  and  in  the  payment  of  debt.  If  taxes  are, 
as  they  ought  to  be,  raised  for  the  expenses  of  a  wrar,  what  facility 
will  a  sinking  fund  give  to  the  raising  of  them  ?  none  wdiatever.  It 
is  not  because  the  possession  of  a  sinking  fund  will  enable  them  to 
raise  new7  and  additional  taxes  that  ministers  prize  it ;  for  they 
know  it  will  have  no  such  effect ;  but  because  they  know  that  they 
will  be  enabled  to  substitute  the  sinking  fund  in  lieu  of  taxes,  and 
employ  it,  as  they  have  always  done,  in  w7ar,  and  providing  interest 
for  fresh  debt.  Their  argument  means  this,  or  it  means  nothing , 
for  a  sinking  fund  does  not  necessarily  add  to  the  wealth  and  pro¬ 
sperity  of  a  country  ;  and  it  is  on  that  wealth  and  prosperity  that  it 
must  depend,  whether  new  burdens  can  be  borne  by  the  people. 
What  did  Mr  Vansittart  mean  in  1813,  when  he  said  that  “  the 
advantage  wdiich  his  new  plan  of  finance  would  hereafter  give,  in 
furnishing  a  hundred  millions  in  time  of  peace,  as  a  fund  against 


ESSAY  ON  THE  FUNDING  SYSTEM. 


547 


the  return  of  hostilities,  was  one  of  great  moment.  This  would 
place  an  instrument  of  force  in  the  hands  of  Parliament,  which 
might  lead  to  the  most  important  results.”  “  It  might  be  objected 
by  some,  that  keeping  in  reserve  a  large  fund  to  meet  the  expenses 
of  a  new  war,  might  be  likely  to  make  the  Government  of  this 
country  arrogant  and  ambitious,  and  therefore  have  a  tendency 
unnecessarily  to  plunge  us  in  new  contests not  a  very  unreason¬ 
able  objection,  we  should  think.  How  does  Mr  Vansittart  answer 
it  ?  “  On  this  subject  he  would  say,  from  long  experience  and 

observation,  that  it  would  be  better  for  our  neighbours  to  depend  on 
the  moderation  of  this  country,  than  for  this  country  to  depend  on 
them.  He  should  not  think  the  plan  objectionable  on  this  account. 
If  the  sums  treasured  up  were  misapplied  by  the  arrogant  or  am¬ 
bitious  conduct  of  our  Government,  the  blame  must  fall  on  the 
heads  of  those  who  misused  it,  not  on  those  who  put  it  into  their 
hands  for  purposes  of  defence.  They  did  their  duty  in  furnishing 
the  means  of  preserving  the  greatness  and  glory  of  the  country, 
though  those  means  might  be  used  for  the  purposes  of  ambition, 
rapine,  and  desolation.”  These  are  very  natural  observations  from 
the  mouth  of  a  minister ;  but  tve  are  of  opinion  that  such  a  treasure 
would  be  more  safe  in  the  custody  of  the  people,  and  that  Parlia¬ 
ment  have  something  more  to  do  than  to  furnish  ministers  with  the 
means  of  preserving  the  greatness  and  glory  of  the  country.  It  is 
their  duty  to  take  every  security  that  the  resources  of  the  country 
are  not  misapplied  “  by  the  arrogant  and  ambitious  conduct  of  our 
Government,”  or  11  used  for  the  purposes  of  ambition,  rapine,  and 
desolation.” 

On  the  extraordinary  assumption  that  there  was  any  thing  in  Mr 
Vansittart’ s  plan  that  would  more  effectually  than  the  old  plan  allow 
100  millions  hereafter  to  be  appropriated  to  the  public  service,  Dr 
Hamilton  has  the  following  observations  : — 

“  We  are  altogether  at  a  loss  to  form  a  distinct  conception  of 
the  valuable  treasure  here  held  forth.  So  soon  as  any  stock  is 
purchased  by  the  commissioners,  and  stands  invested  in  their  name, 
a  like  amount  of  the  public  debt  is  in  fact  discharged.  Whether  a 
parliamentary  declaration  to  the  effect  be  made  or  not  is  only  a 
matter  of  form.  If  the  money  remain  invested  in  the  name  of  the 
commissioners,  no  doubt  it  may  be  transferred  again  to  purchasers 
in  the  stock  exchange  when  war  broke  out  anew ;  and  money  may 
be  raised  for  the  public  in  this  manner.  It  is  an  application  to  the 
public  to  invest  their  capital  in  the  purchase  of  this  dormant  stock.” 
“  It  is  true,  that  if  the  taxes  imposed  during  war  for  the  purpose 
of  a  sinking  fund  be  continued  after  peace  is  restored,  till  a  large 
sum  (suppose  100,000,000/.)  be  vested  in  the  hands  of  the  Commis¬ 
sioners,  the  public,  upon  the  renewal  of  the  war,  may  spend  to  that 
amount  without  imposing  fresh  taxes, — an  advantage,”  observes 
Mr  Huskisson,  u  not  only  not  exclusively  belonging  to  this  plan, 
but  unavoidable  under  any  plan  of  a  sinking  fund  in  time  of  peace.” 


548 


ESSAY  ON  THE  FUNDING  SYSTEM. 


Mr  Vansittart  ought  to  have  said,  “  If  our  sinking  fund  should 
accumulate  in  time  of  peace  to  so  large  a  sum  that  I  can  take 
5  millions  per  annum  from  it,  I  can  spend  100,000,000/.  in  a  new 
war  without  coming  to  you  for  fresh  taxes ;  the  disadvantages  of 
my  plan  are,  that  by  now  taking  7,000,000/.  per  annum  from  it, 
and  making  a  provision  for  speedily,  and  at  regular  intervals, 
appropriating  more  of  this  fund  to  present  objects,  the  sinking  fund 
will  be  so  much  diminished  that  I  cannot  so  soon,  by  a  great  many 
years,  avail  myself  of  the  5  millions  for  the  purpose  which  I  have 
stated.” 


OBSERVATIONS 


ON 


PA  Pi  L I  AM  EXT  All  Y  REFORM. 


Tiie  manuscript  of  the  following  Essay  on  Parliamentary  Reform  was  given  by  Mi 
Ricardo,  a  short  time  before  his  death,  to  Mr  M'Culloch.  The  latter,  not  thinking  it 
right  that  so  important  a  paper  should  he  withheld  from  the  public,  printed  it  in  tha 
Scotsman  of  the  24th  of  April  1824. 


OBSERVATIONS 


ON 

PARLIAMENTARY  REFORM. 


A  31  ox  arch,  or  any  other  ruler,  wishes  to  have  no  other  check  on 
his  actions  but  his  own  will,  and  would,  if  he  could,  reign  des¬ 
potically,  unconti’olled  by  any  other  power.  In  every  country  of 
the  world,  some  check,  more  or  less  strong,  exists  on  the  will  of  the 
Sovereign,  even  in  those  Governments  which  are  supposed  to  be 
the  most  despotic.  In  Turkey,  and  at  Algiers,  the  people  or  the 
army  rise  up  in  insurrection,  and  frequently  depose  and  strangle 
one  tyrant,  and  elevate  another  in  his  place,  who  is  checked  in  his 
career  by  a  dread  of  the  same  species  of  violence. 

The  only  difference,  in  this  point,  between  the  Governments  of 
countries  which  are  called  free  and  those  which  are  called  arbitrary, 
is  in  the  organization  of  this  check,  and  in  the  facility  and  efficacy 
with  which  it  is  brought  to  bear  upon  the  will  of  the  Sovereign. 
In  England,  the  monarch’s  authority  is  checked  by  the  fear  of 
resistance,  and  the  power  of  organizing  and  calling  forth  this 
resistance  is  said  to  be  in  the  aristocracy  and  the  people,  through 
the  medium  of  the  two  Houses  of  Parliament. 

It  is  undoubtedly  true  that  the  monarch  would  not  long  venture 
to  oppose  the  opinion  decidedly  expressed  by  the  House  of  Com¬ 
mons,  and  therefore  he  may  be  said  to  be  checked  and  controlled 
by  those  who  appoint  the  House  of  Commons.  All  great  questions 
are  decided  in  the  House  of  Commons  ;  the  House  of  Lords  seldom 
gives  any  opposition  to  important  measures  to  which  the  other 
House  has  given  its  sanction.  Nor,  when  the  constitution  of  that 
House  is  considered,  is  such  opposition  necessary,  for  the  House  of 
Commons  is  not  appointed  by  the  people,  but  by  the  Peers  and  the 
wealthy  aristocracy  of  the  country.  The  really  efficient  power  of 
Government  is,  then,  in  the  hands  of  the  wealthy  aristocracy, 
subject,  indeed,  to  an  irregular  influence  which  I  shall  presently 
explain.  What  is  the  consequence  of  this  ? — A  compromise  between 
the  aristocracy  and  the  monarchy ;  and  all  the  power  and  influence 
which  Government  gives  are  divided  between  them.  The 
monarch  has  the  appointment  to  all  places  of  trust  and  profit — 


552 


OBSERVATIONS  ON  PARLIAMENTARY  REFORM. 


to  the  ministry — to  the  army  and  navy — to  the  courts  of  law ; 
lie  has  also  the  power  of  appointing  to  many  other  lucrative  situa¬ 
tions,  such  as  ambassadors,  heads  and  subordinates  of  public  offices, 
&c.,  &c.  Notwithstanding  this  great  power,  his  measures  can  be 
controlled  by  the  House  of  Commons,  and  therefore,  it  is  of  import¬ 
ance  to  Government  to  get  a  majority  in  that  House. 

This  is  easily  obtained  by  giving  a  portion  of  these  lucrative 
places  to  those  who  have  the  choice  of  the  majority  of  the  House 
of  Commons ;  accordingly,  it  is  well  known  that  no  means  are  so 
effectual  for  obtaining  situations  of  trust  and  profit  from  the  Crown 
as  the  possession  of  parliamentary  influence ;  and,  as  the  appetite 
for  lucrative  places  is  insatiable,  both  in  ministers  and  their  fol¬ 
lowers,  and  the  oligarchy  and  theirs,  places  are  often  created  for 
the  men,  and  others  are  frequently  continued  after  they  have 
become  unnecessary,  for  the  advantage  solely  of  these  favoured 
individuals.  If,  then,  there  were  no  other  check  on  both  these 
bodies,  England  would  not  have  to  boast  of  a  better  Government 
than  what  exists  in  those  countries  in  which  it  is  called  despotic. 
But,  happily,  there  is  another  check,  and  that  a  tolerably  efficient 
one,  which  is  with  the  people,  and  would  not,  without  a  violent 
struggle,  be  wrested  from  them.  The  check  on  this  Government, 
which  operates  on  behalf  of  the  people,  is  the  good  sense  and 
information  of  the  people  themselves,  operating  through  the  means 
of  a  free  press,  which  controls  not  only  the  Sovereign  and  his 
ministers,  but  the  aristocracy  and  the  House  of  Commons,  which 
is  under  its  influence.  This  is  the  great  safeguard  of  our  liberties. 
Every  transaction  of  the  great  functionaries  of  the  State  is,  by 
means  of  the  press,  conveyed  in  two  days  to  the  extremities  of  the 
kingdom,  and  the  alarm  is  sounded  if  any  measure  is  adopted,  or 
even  proposed,  which  might  in  its  tendency  be  hurtful  to  the 
community.  This  check,  then,  like  others  that  we  have  been 
speaking  of,  resolves  itself  into  the  fear  which  Government  and  the 
aristocracy  have  of  an  insurrection  of  the  people,  by  which  their 
power  might  be  overturned,  and  which  alone  keeps  them  within 
the  bounds  which  now  appear  to  arrest  them.  The  press,  amongst 
an  enlightened  and  well-informed  people,  is  a  powerful  instrument 
to  prevent  misrule,  because  it  can  quickly  organise  a  formidable 
opposition  to  any  encroachment  on  the  people’s  rights,  and,  in  the 
present  state  of  information,  perhaps  there  would  not  be  found  a 
minister  who  would  be  sufficiently  daring  to  attempt  to  deprive  us 
of  it.  This  power,  however,  is  irregular  in  its  operation.  It  is  not 
always  easy  to  rouse  the  people  to  an  active  opposition  to  minor 
measures,  which  may  be  shown  to  be  detrimental  to  their  interests  ; 
neither  is  it  powerful,  on  ordinary  occasions,  in  getting  a  repeal  of 
those  laws,  which,  however  detrimental,  have  been  long  in  force ; 
and  therefore  it  is  in  a  certain  degree  braved.  In  spite  of  the 
thunders  of  the  press,  men  continue  to  be  placed  in  Parliament, 
whose  interests  are  often  at  direct  variance  with  the  interest  of 


OBSERVATIONS  ON  PARLIAMENTARY  REFORM. 


553 


the  people.  The  offices  of  State,  and  the  lucrative  situations  under 
Government,  are  not  bestowed  according  to  merit ;  bad  laws  con¬ 
tinue  to  disgrace  our  statute-book,  and  good  ones  are  rejected 
because  they  would  interfere  with  particular  interests ;  wars  are 
entered  into  for  the  sake  of  private  advantage,  and  the  nation  is 
borne  down  with  great  and  unnecessary  expenses.  Experience 
proves  that  the  liberty  of  the  press  is  insufficient  to  correct  or 
prevent  these  abuses,  and  that  nothing  can  be  effectual  to  that 
purpose  but  placing  the  check  in  a  more  regular  manner  in  the 
people  by  making  the  House  of  Commons  really  and  truly  the 
representatives  of  the  people.  Of  all  the  classes  in  the  community 
the  people  only  are  interested  in  being  well  governed ;  on  this 
point  there  can  be  no  dispute  or  mistake.  Good  government  may 
be  contrary  to  the  interests  of  the  aristocracy,  or  to  those  of  the 
monarch,  as  it  may  prevent  them  from  having  the  same  emoluments, 
advantage,  or  power,  which  they  would  have  if  Government  was 
not  busied  about  the  happiness  of  the  many,  but  chiefly  concerned 
itself  about  the  happiness  of  the  few ;  but  it  can  never  be  pre¬ 
judicial  to  the  general  happiness. 

If,  then,  we  could  get  a  House  of  Commons  chosen  by  the 
people,  excluding  all  those,  whether  high  or  low,  who  had  interests 
separate  and  distinct  from  the  general  interest,  we  should  have  a 
controlling  body  whose  sole  business  and  duty  it  would  be  to 
obtain  good  government.  It  is  not  denied  that,  in  innumerable 
instances,  the  interest  of  the  aristocracy  and  that  of  the  people 
will  be  the  same,  and  therefore  many  good  laws  and  regulations 
would  be  made  if  the  aristocracy  were  to  govern  without  control. 
The  same  may  be  said  of  the  Monarch ;  but  in  many  important 
instances  they  will  also  be  opposed,  and  then  it  is  that  we  shall  look 
in  vain  for  good  laws  and  for  good  government.  A  reform  in  the 
House  of  Commons,  then, — the  extension  of  the  elective  franchise 
to  all  those  against  whom  no  plausible  reason  can  be  urged  that  they 
have,  or  suppose  they  have,  interest  contrary  to  the  general  interest, 
is  the  only  measure  which  will  secure  liberty  and  good  government 
on  a  solid  and  permanent  foundation.  This  is  so  self-evident  that 
one  is  surprised  that  an  argument  can  be  offered  against  it ;  but,  to 
do  the  opponents  of  this  measure  justice,  they  do  not  advance  any 
direct  argument  against  it ;  their  whole  endeavour  is  to  evade  it. 

A  House  of  Commons  such  as  you  contend  for,  they  say,  would 
be  a  good,  but  how  are  you  to  obtain  it  ?  Has  not  the  country 
flourished  in  spite  of  the  imperfections  you  mention,  and  why  would 
you  wish  to  improve  what  is  already  demonstrated  to  be  so  good  ? 
The  House  of  Commons  is  not  chosen  by  the  people  generally,  but 
it  is  chosen  by  men  who  have  received  a  good  and  liberal  educa¬ 
tion — whose  characters  are  unimpeachable,  and  who  are  much 
better  judges  of  what  will  conduce  to  the  happiness  of  the  people 
than  they  themselves  are.  By  extending  the  franchise  you  open 
the  door  to  anai  chy,  for  the  bulk  of  the  people  are  interested,  oi 


554 


OBSERVATIONS  ON  PARLIAMENTARY  REFORM. 


think  they  are  so,  in  the  equal  division  of  property,  and  they  would 
choose  only  such  demagogues  as  held  out  the  hope  to  them  that 
such  division  should  take  place.  To  which  it  may  be  answered, 
that  although  it  be  true  that  the  country  has  flourished  with  a 
House  of  Commons  constituted  as  ours  has  been,  it  must  be  shown 
that  such  a  constitution  of  it  is  favourable  to  the  prosperity  of  the 
country,  before  such  an  argument  can  be  admitted  for  its  continu¬ 
ance.  It  is  not  sufficient  to  say  that  we  have  been  successful,  and 
therefore  we  should  go  on  in  the  same  course.  The  question  to  be 
asked  is,  notwithstanding  our  success,  has  there  been  nothing  in  our 
institutions  to  retard  our  progress  ?  A  merchant  may  flourish 
although  he  is  imposed  upon  by  his  clerk,  but  it  would  be  a  worth¬ 
less  argument  to  persuade  him  to  keep  this  clerk  because  he  had 
flourished  while  he  was  in  his  employ.  Whilst  any  evil  can  be 
removed,  or  any  improvement  adopted,  we  should  listen  to  no  sug¬ 
gestions  so  inconclusive  as  that  we  have  been  donur  well.  Such 
an  argument  is  a  bar  to  all  progress  in  human  affairs. 

AYhy  have  wre  adopted  the  use  of  steam-engines  ?  It  might  have 
been  demonstrated  that  our  manufactures  had  flourished  without 
them,  and  why  not  let  well  enough  alone  ?  Nothing  is  well  enough 
whilst  anything  better  is  within  our  reach  ;  this  is  a  fallacy  which 
can  only  be  advanced  by  the  ignorant  or  designing,  and  can  no 
longer  impose  on  us.  What  signifies,  too,  the  unimpeachable 
characters  and  the  good  education  of  those  who  choose  the  members 
of  the  House  of  Commons  ?  Let  me  know  what  the  state  of  their 
interests  is,  and  I  will  tell  you  what  measures  they  will  recommend. 

If  this  argument  were  good  for  any  thing,  we  might  get  rid  of 
all  the  checks  and  restraints  of  law,  as  far  at  least  as  they  regarded 
a  part  of  the  community.  Why  ask  from  ministers  an  account  of 
the  public  income  and  expenditure  annually  ?  Are  they  not  men 
of  good  character  and  education  ? 

What  need  of  a  House  of  Commons  or  of  a  House  of  Lords  ? 
Are  they  to  restrain  the  Sovereign  ?  Why  should  you  not  place 
the  fullest  reliance  in  his  virtue  and  integrity  ? 

Why  fetter  the  judges  by  rules,  and  burden  them  with  juries? 
Is  it  possible  that  such  enlightened  and  good  men  could  decide 
unjustly  or  corruptly?  To  keep  men  good  you  must  as  much  as 
possible  withdraw  from  them  all  temptation  to  be  otherwise.  The 
sanctions  of  religion,  of  public  opinion,  and  of  law,  all  proceed  on 
this  principle,  and  that  State  is  most  perfect  in  which  all  these 
sanctions  concur  to  make  it  the  interest  of  all  men  to  be  virtuous, 
which  is  the  same  thing  as  to  say,  to  use  their  best  endeavour  to 
promote  the  general  happiness. 

The  last  point  for  consideration  is  the  supposed  disposition  of  the 
people  to  interfere  with  the  rights  of  property.  So  essential  does 
it  appear  to  me,  to  the  cause  of  good  government,  that  the  rights 
of  property  should  be  held  sacred,  that  I  would  agree  to  deprive 
those  of  the  elective  franchise  against  whom  it  could  justly  be 


OBSERVATIONS  ON  PARLIAMENTARY  REFORM. 


555 


alleged  that  they  considered  it  their  interest  to  invade  them.  But 
in  fact  it  can  be  only  amongst  the  most  needy  in  the  community 
that  such  an  opinion  can  be  entertained.  The  man  of  a  small 
income  must  be  aware  how  little  his  share  would  be  if  all  the  large 
fortunes  in  the  kingdom  were  equally  divided  among  the  people. 
He  must  know  that  the  little  he  would  obtain  by  such  a  division 
could  be  no  adequate  compensation  for  the  overturning  of  a  principle 
which  renders  the  produce  of  his  industry  secure.  Whatever 
might  be  his  gains  after  such  a  principle  had  been  admitted,  would 
be  held  by  a  very  insecure  tenure,  and  the  chance  of  his  making 
any  future  gains  would  be  greatly  diminished  ;  for  the  quantity  of 
employment  in  the  country  must  depend,  not  only  on  the  quantity 
of  capital,  but  upon  its  advantageous  distribution,  and,  above  all, 
on  the  conviction  of  each  capitalist  that  he  will  be  allowed  to  enjoy 
unmolested  the  fruits  of  his  capital,  his  skill,  and  his  enterprise. 
To  take  from  him  this  conviction  is  at  once  to  annihilate  half  the 
productive  industry  of  the  country,  and  would  be  more  fatal  to  the 
poor  labourer  than  to  the  rich  capitalist  himself.  This  is  so  self- 
evident,  that  men  very  little  advanced  beyond  the  very  lowest 
stations  in  the  country  cannot  be  ignorant  of  it ;  and  it  may  be 
doubted  whether  any  large  number  even  of  the  lowest  wrould,  if 
they  could,  promote  a  division  of  property.  It  is  the  bugbear  bv 
which  the  corrupt  always  endeavour  to  rally  those  who  have 
property  to  lose  around  them,  and  it  is  from  this  fear,  or  pretended 
fear,  that  so  much  jealousy  is  expressed  of  entrusting  the  least 
share  of  power  to  the  people.  But  the  objection,  when  urged 
against  reform*  is  not  an  honest  one,  for,  if  it  be  allowed  that  those 
who  have  a  sacred  regard  to  the  rights  of  property  should  have  a 
voice  in  the  choice  of  representatives,  the  principle  is  granted  for 
which  reformers  contend.  They  profess  to  want  only  good  govern¬ 
ment,  and,  as  a  means  to  such  an  end,  they  insist  that  the  power  of 
choosing  members  of  Parliament  should  be  given  to  those  who 
cannot  have  an  interest  contrary  to  good  government.  If  the 
objection  made  against  reform  were  an  honest  one,  the  objectors 
would  say  how  low  in  the  scale  of  society  they  thought  the  rights 
of  property  were  held  sacred,  and  there  they  would  make  their 
stand.  That  class,  and  all  above  it,  they  would  say,  may  fairly  and 
advantageously  be  entrusted  with  the  power  which  is  wished  to  be 
given  them,  but  the  presumption  of  mistaken  views  of  interest  in  all 
below  that  class  would  render  it  hazardous  to  entrust  a  similar 
power  with  them — it  could  not  at  least  be  safely  done  until  we  had 
more  reason  to  be  satisfied  that,  in  their  opinion,  the  interest  of  the 
community  and  that  of  themselves  were  identified  on  this  impor¬ 
tant  subject. 

This  concession  would  satisfy  the  reasonable  part  of  the  public. 
It  is  not  universal  suffrage  as  an  end,  but  as  a  means,  of  good 
government,  that  the  partisans  of  that  measure  ask  it  for.  Give 
them  the  good  government,  or  let  them  be  convinced  that  you  are 


OBSERVATIONS  ON  PARLIAMENTARY  REFORM. 


556 

really  in  earnest  in  procuring  it  for  them,  and  they  will  be  satisfied, 
although  you  should  not  advance  with  the  rapid  steps  that  they 
think  would  be  most  advantageously  taken.  My  own  opinion  is  in 
favour  of  caution,  and  therefore  I  lament  that  so  much  is  said  on 
the  subject  of  Universal  Suffrage.  I  am  convinced  that  an  extension 
of  the  suffrage,  far  short  of  making  it  universal,  will  substantially 
secure  to  the  people  the  good  government  they  wish  for,  and 
therefore  I  deprecate  the  demand  for  the  universality  of  the  elective 
franchise  ;  at  the  same  time,  I  feel  confident  that  the  effects  of  the 
measure  which  would  satisfy  me  would  have  so  beneficial  an  effect 
on  the  public  mind — would  be  the  means  of  so  rapidly  increasing 
the  knowledge  and  intelligence  of  the  public,  that,  in  a  limited 
space  of  time  after  this  first  measure  of  reform  were  granted,  we 
might,  with  the  utmost  safety,  extend  the  right  of  voting  for 
members  of  Parliament  to  every  class  of  the  people. 

But  it  is  intolerable,  because  the  House  of  Commons  is  not  dis¬ 
posed  to  go  the  full  length  of  what  is  perhaps  indiscreetly  asked  of 
them,  that  therefore  they  should  refuse  to  grant  any  reformation  of 
abuses  whatever,  that,  against  the  plainest  conviction,  they  should 
assert  that  a  House  of  Commons,  constituted  as  this  is,  is  best 
calculated  to  give  to  the  people  the  advantages  of  good  government, 
and  that  they  should  continue  to  maintain  that  the  best  interests 
of  the  people  are  attended  to,  when  it  is  demonstrated  that  they 
not  only  are  not,  but  cannot  be,  whenever  they  are  opposed  to  the 
interests  of  those  who  are  in  full  possession  of  power,  namely,  the 
King,  and  the  Oligarchy,  who  are  bribed  to  support  his  govern¬ 
ment. 


SPEECH 


ON  THK 


PLAN  OF  VOTING  BY  BALLOT 


This  speech  appeared  originally  in  the  Scotsman  of  the  17th  of  July  1824,  being  intro¬ 
duced  by  the  following  paragraph : — 

“  The  following  report  of  one  of  Mr  Ricardo’s  speeches  in  Parliament — most  probably 
the  one  he  delivered  on  the  24th  April  1823,  in  the  debate  on  Lord  John  Russell’s  motion 
— written  in  his  own  hand,  was  found  among  his  manuscripts  subsequently  to  his  death. 
His  friends  have  kindly  communicated  it  to  us,  and  we  now  publish  it  verbatim  from 
the  manuscript,  without  any  alteration  of  any  kind  whatever.  Mr  Ricardo  was  always 
a  decided  supporter  of  the  plan  of  election  by  ballot ;  and  he  has  here  stated,  with 
that  brevity,  clearness,  and  comprehensiveness  of  view  peculiar  to  himself,  the  grounds 
on  which  he  approved  of  that  plan.  We  will  not  presume  to  say  that  Mr  Ricardo 
has  obviated  all  the  objections  that  have  been  urged  against  the  ballot ;  but  every 
one  will  readily  allow  that  his  defence  of  it  is  able  and  ingenious,  and  that  be  has 
6aid  almost  all  that  can  be  said  in  its  behalf'.'1 


SPEECH. 


Sir, — The  general  question  of  a  reform  in  the  representation  of 
this  House,  has  been  so  fully  discussed,  and  so  ably  supported  by 
many  honourable  gentlemen  that  have  preceded  me  in  the  debate, 
that  I  shall  not  detain  the  House  by  offering  any  observations  on  it, 
but  shall  confine  myself  to  the  consideration  of  that  part  of  the 
subject,  which  has  been  little  noticed,  but  which,  in  my  opinion,  is 
of  so  much  importance,  that,  without  it,  no  substantial  reform  can 
be  obtained  : — I  mean,  Sir,  the  changing  the  present  mode  of  open 
election  for  members  of  Parliament,  and  substituting  in  its  room 
the  secret  mode,  or  ballot. 

In  order  to  appreciate  the  advantages  which  will  result  from  the 
proposed  change,  it  may  not  be  improper  to  state,  as  briefly  as 
possible,  to  the  House,  the  inconveniences  attending  the  present 
mode  of  election  ;  that  having  the  nature  of  the  evil  before  them, 
they  may  be  the  better  able  to  judge  of  the  efficacy  of  the  pro¬ 
posed  remedy.  By  some,  indeed,  it  may  be  thought  a  vain  and 
useless  occupation  of  the  time  of  the  House  to  recapitulate  the  evils 
of  our  present  system,  for  it  may  with  justice  be  asked,  who 
amongst  us  is  not  acquainted  with  the  bribery,  the  riots,  the  intoxi¬ 
cation,  and  the  immoralities  of  every  description,  which  take  place 
on  the  occasion  of  every  general  election  ?  These  disgusting  facts 
are  unfortunately  too  notorious,  yet  it  may  not  be  unuseful  to 
submit  them  to  the  attention  of  the  House. 

The  scenes  which  occur  at  such  times,  would  disgrace  a  barbarous 
people.  The  reign  of  the  law  appears  to  cease,  and  impunity  to  be 
proclaimed  for  every  species  of  violence.  A  rude  and  brutal  popu¬ 
lace,  the  offscourings  of  our  population,  surround  the  hustings,  and 
heap  every  sort  of  insult  and  indignity  on  the  candidate  who  happens 
not  to  enjoy  their  favour.  Dirt,  filth,  and  often  stones,  are  thrown 
at  him — the  most  unmanly  attacks  are  made  upon  his  person,  and 
it  is  frequently  a  task  of  difficulty  to  his  friends  to  protect  him  from 
the  effects  of  their  savage  and  brutal  animosity. 

Nor  is  it  the  candidate  only  that  is  thus  exposed  to  their  rage, 


560 


SPEECH  ON  VOTING  BY  BALLOT. 


but  every  elector  is  applauded  or  hissed,  caressed  or  furiously 
attacked,  as  he  may  favour  or  oppose  by  his  vote,  the  favourite  of 
the  mob.  Idleness  and  the  neglect  of  work  always  follow  in  the 
train  of  an  election — they  are  succeeded  by  debauchery  and  intoxi¬ 
cation,  and  for  a  period  the  country  suffers  under  all  the  evils  of 
anarchy.  I  know  that  these  violences  are  in  almost  all  cases  com¬ 
mitted  by  the  lowest  of  the  mob,  that  they  are  not  to  be  imputed 
to  the  electors  themselves,  but  to  the  assemblage  of  the  idle  and 
disorderly  which  every  great  town  affords,  but  the  evil  is  not  less 
serious  on  that  account,  and  does  not  less  imperiously  call  on  us  for 
a  remedy. 

These,  however,  constitute  but  one  portion,  and  indeed  a  very 
inferior  portion  of  the  evil  which  attends  the  present  mode  of 
election.  Bad  as  it  is,  if  even  at  this  price  we  obtained  a  Parliament 
freely  chosen  by  the  people,  we  should  have  some  consolation, 
although  it  would  be  our  duty  to  endeavour  to  retain  the  good,  and 
get  rid  of  what  was  bad  in  the  system.  But  this  consolation  is  not 
afforded  us,  and,  in  addition  to  the  evil  which  I  have  already  men¬ 
tioned,  we  have  the  far  greater  one  to  guard  against,  which  ai’ises 
from  the  influence  exercised  over  the  voters  at  elections.  Of  what 
use  is  it  to  mark  with  precision  how  low  in  the  scale  of  rank  the 
right  of  voting  for  members  of  parliament  shall  commence,  if  you 
take  no  steps  to  secure  to  the  electors  the  right  which  you  propose 
to  accord  to  them  ?  It  is  the  most  cruel  mockery  to  tell  a  man  he 
may  vote  for  A  or  B,  when  you  know  that  he  is  so  much  under  the 
influence  of  A,  or  the  friends  of  A,  that  his  voting  for  B  would  be 
attended  with  destruction  to  him.  He  cannot  justly  be  said  to 
have  a  vote,  unless  he  have  the  free  exercise  of  it  without  prejudice 
to  his  fortune.  Is  this  the  case  at  present?  Is  it  not  a  delusion  to 
say  that  every  freeholder  of  40s.  a  year  has  a  vote  for  a  member  of 
Parliament,  when  in  most  cases  he  cannot  vote  as  he  pleases 
without  ruin  to  himself?  It  is  not  he  who  has  the  vote,  really  and 
substantially,  but  his  landlord,  for  it  is  for  his  benefit  and  interest 
that  it  is  exercised  on  the  present  system.  Of  what  advantage 
would  be  the  reform  that  is  proposed,  of  extending  the  elective 
franchise  to  all  householders,  or,  as  others  recommend,  to  all  males 
of  twenty-one  years  of  age,  if  this  increased  number  of  electors 
were  to  be,  as  they  now  are,  completely  under  the  influence  of  the 
same  men,  or  of  men  having  precisely  the  same  views  and  interests 
as  those  who  play  so  grand  a  part  in  returning  members  to  Parlia¬ 
ment?  The.  more  extended  the  suffrage  the  more  influence  would 
be  possessed  by  peers  and  the  wealthy  aristocracy  of  the  country, 
and  therefore  the  more  certainly  should  we  have  a  Parliament 
which  would  be  their  representatives,  and  the  advocates  of  their 
particular  interests,  and  not  of  the  interests  of  the  great  mass  of 
the  people.  In  many  populous  cities  householders  are  now  said  to 
have  votes  for  the  repi’esentatives  of  their  city;  but  are  not  the 
cases  numerous  in  which  they  dare  not  openly  exercise  the  right  ? 


SPEECH  ON  VOTING  BY  BAT  LOT. 


5*1 


Is  it  to  be  expected  that  they  will  expose  themselves  to  a  resent¬ 
ment  which  will  overwhelm  them,  whether  it  be  from  their  best 
customers,  the  rich  consumers,  if  they  are  shopkeepers, — the  magis¬ 
trates,  if  they  are  publicans, — their  employers,  if  they  are  clerks, 
and  in  subordinate  situations, — or  any  other  class,  who  may  be 
supposed  to  have  an  influence  over  their  property  ?  By  extending 
the  suffrage,  an  additional  security  is  afforded  against  bribery, 
because  the  greater  the  number  of  electors  the  more  difficult  will 
it  be  to  provide  funds  for  the  purpose  of  directly  influencing 
votes  by  means  of  bribes.  But  it  must  not  be  forgotten  that 
bribery  is  only  one  of  the  modes,  and  by  no  means  the  most  effica¬ 
cious  mode,  by  which  voters  are  influenced.  Mr  Bentham’s  saga¬ 
city  did  not  fail  to  discover  that  terror  was  the  great  instrument  of 
influence  and  corruption.  Votes  are  more  effectually  secured  by 
the  fear  of  loss  than  by  the  hope  of  gain.  Those  whose  characters 
afford  security  against  the  offering  of  bribes,  and  who  would  think 
themselves  disgraced  by  a  practice  which  is  universally  condemned, 
do  not  disdain  to  make  use  of  the  persuasive  instrument  of  fear. 
In  its  operation  it  is  silent — it  is  not  necessary  to  proclaim  to  the 
voter  the  danger  which  he  runs  of  disobliging  his  landlord,  or  patron  ; 
it  is  understood  without  explanation,  and  no  one  who  hears  me 
can  doubt  of  its  powerful  effects  on  every  occasion.  Although, 
then,  by  extending  the  suffrage  you  weaken  the  corruptive  effect 
of  bribery,  you  increase  that  which  is  produced  by  alarm  and  fear, 
for  in  proportion  as  the  fortunes  of  the  voter  are  more  humble,  the 
more  surely  will  he  be  under  the  influence  of  those  who  have  the 
power  to  sway  those  fortunes.  Happily  a  security  can  be  found 
against  this  influence  ;  but  if  it  could  not,  I  should  deem  that  an 
improvement  which  should  raise  the  qualification,  and  limit  the 
number  of  voters  ;  for  the  chance  of  finding  an  independent  spirit 
in  electors  would  be  increased,  if  the  qualification  was  raised  to 
100/.  per  annum,  rather  than  if  it  continued  as  it  is,  or  were  lowered 
below  40s.  These,  then,  are  the  evils  against  which  we  have  to 
provide,  and  the  House  will  readily  perceive,  that  those  which  arise 
from  riots,  intoxication,  and  idleness,  arc  of  a  different  description 
from  those  which  are  the  consequence  of  undue  influence  exercised 
over  the  minds,  directly  or  indirectly,  of  the  electors  ;  and  accord¬ 
ingly  the  bill  before  you  offers  two  distinct  remedies.  To  obviate 
the  first  evil,  it  is  proposed  to  take  the  votes  throughout  the  country 
on  the  same  day,  and,  instead  of  the  elections  being  for  the  whole 
of  a  country,  and  held  in  one  single  place,  that  votes  be  received  in 
several  districts  at  the  same  time.  To  obviate  the  second,  it  is 
proposed  that  the  ballot,  or  the  secret  mode  of  election,  be  substi¬ 
tuted  for  the  open  mode. 

These  two  propositions  are  very  distinct,  and  they  should  not  be, 
as  they  often  are,  confounded  ;  for  one  might  be  rejected,  and  the 
other  adopted.  Those,  for  example,  who  are  of  opinion  that  the 
public  and  noisy  assemblage  of  the  rabble  about  the  hustings  is 

N  N 


502 


SrEEOII  ON  VOTING  BY  BALLOT. 


attended  with  benefits  outweighing  the  evils  which  have  been 
stated,  might  reject  that  clause  which  proposes  to  take  the  votes 
by  districts,  but  might,  nevertheless,  adopt  the  other  which  requires 
that  the  election  should  be  by  ballot.  The  people  might  assemble 
about  the  hustings  as  they  now  do  ;  they  might  listen,  or  not 
listen,  to  the  speeches  of  the  candidates,  as  their  humour  might 
dictate  ;  they  might  show  all  the  usual  marks  of  their  sympathy  or 
disapprobation,  and  yet  the  voting  might  be  secret ;  and,  on  the 
contrary,  those  who  are  in  favour  of  open  voting,  might  approve  of 
votes  being  given  in  districts,  although  they  rejected  the  ballot. 

According  to  the  best  judgment  which  I  can  form  on  this  im¬ 
portant  subject,  we  ought  to  adopt  both  these  clauses.  That 
respecting  time  and  place  of  voting  will  give  us  sufficient  security 
against  the  disgusting  exhibitions  and  riotous  proceedings  which 
have  hitherto  attended  elections.  Through  the  medium  of  the 
press,  the  candidate  may  make  known  his  pretensions  ;  through  the 
same  channel,  objections  may  be  made  to  his  principles,  or  to  his 
former  conduct — the  press  is  open  to  all — and  the  candidates  would 
no  longer  be  subjected  to  an  ordeal  which  is  not  a  test  of  merit, 
but  of  endurance.  Because  a  man  has  the  honest  ambition  of 
representing  a  populous  city  in  Parliament,  must  he  make  up  his 
mind  to  endure  all  the  insults  which  can  be  heaped  upon  him  by 
the  lowest  of  the  rabble  ?  It  is  said,  that  it  is  fit  his  claims  should 
be  examined  into, — that  without  preparation  he  should  be  called 
upon  immediately  to  explain  what  has  been  ambiguous  in  his  former 
conduct; — what  are  his  principles  on  the  grand  questions  which 
are  likely  to  be  submitted  to  him  ;  and,  that  he  should  be  called 
upon  to  speak  on  any  other  matters  which  may  be  proposed  to  him. 
This  might  be  useful  if  he  presented  himself  before  an  impartial 
tribunal  ;  but  those  who  make  this  objection  are  bound  to  show 
that  candidates  on  both  sides  are  fairly  listened  to,  and  that  even 
the  semblance  of  justice  is  extended  to  them.  One  of  the  argu¬ 
ments  now  offered  in  favour  of  the  borough  system,  and  it  is  one 
of  considerable  weight,  is,  that  without  such  boroughs,  many  men 
of  merit  would  never  be  in  Parliament — and  why?  because  they 
are  troubled  with  modesty,  and  with  the  feelings  of  gentlemen, 
which  makes  it  intolerable  to  them  to  submit  to  the  injustice,  the 
insolence,  and  the  insults  of  the  lowest  of  the  rabble.  That  we 
may  be  sure  of  the  services  of  these  men,  then,  I  demand  that  this 
clause  be  adopted.  These  public  meetings,  it  has  been  said,  ate 
useful  in  giving  a  tone  to  public  feeling,  and  raising  the  lowest  ol 
the  community  in  his  own  estimation,  by  making  him  feel  that  he 
has  a  share  in  the  government  of  his  country.  Can  he  be  said  to 
have  this  share  if  he  is  without  a  vote  ?  Does  he  show  his  im¬ 
portance  by  spitting  at  the  candidate,  by  throwing  dirt  and  filth 
in  his  face  ?  This  is  not  calculated  to  raise  him  in  his  own  estima¬ 
tion  ;  and  if  it  be  right  that  he  should  have  a  voice  in  the  govern¬ 
ment  of  his  country,  give  him  that  voice,  and  allow  him  to  exercise 


SPEECH  ON  VOTING  BY  BALLOT. 


563 


it  legally,  on  the  same  terms  with  the  first  elector  in  the  land,  but 
do  not  delude  us  or  him,  by  giving  him  the  shadow,  and  calling  it 
the  substance  of  power ! 

The  other  clause,  namely,  that  which  establishes  the  ballot,  appears 
to  me  to  offer  complete  security  against  those  evils  which  flow  from 
the  influence  of  power.  If  voting  took  place  by  ballot,  all  the 
influence  now  practised  on  voters  would,  in  a  great  measure,  cease  ; 
for,  to  what  purpose  would  you  threaten  a  man  for  the  vote  he 
should  give,  or  how  could  you  punish  him  for  it  when  given,  if,  by 
the  regulation,  you  were  absolutely  precluded  from  knowing  for 
which  candidate  he  voted?  Establish  the  ballot,  and  every  elector 
is  from  that  moment  in  possession  of  a  real,  and  not  of  an  imaginary 
privilege.  Of  what  use  would  it  be  to  threaten  a  publican  with 
the  loss  of  his  license,  a  farmer  with  the  deprivation  of  his  lease,  a 
tradesman  with  the  loss  of  your  custom,  when  you  can  never  know¬ 
how  he  voted,  unless  he  chose  to  communicate  it  to  you?  The 
elective  franchise,  if  it  should  be  thought  expedient,  might  be  ex¬ 
tended.  The  very  extension  would  secure  you  from  direct  bribery, 
for  no  fortune  would  be  equal  to  bribe  a  nation  of  electors,  and 
terror  would  cease  to  operate,  for  it  -would  be  in  vain  to  endeavour 
to  mark  the  victims.  An  honourable  gentleman  has  said,  that  if 
the  ballot  were  established,  it  would  not  prevent  candidates,  and 
the  friends  of  candidates,  from  endeavouring  to  get  the  promise  of 
votes ;  and  then  he  observes  that,  if  the  electors  keep  their  promises, 
there  will  be  no  advantage  from  the  ball  >t,  as  they  will  vote  then 
precisely  as  they  do  now ;  but  if  they  do  not  keep  their  promises, 
they  will  be  guilty  of  an  immoral  act,  which  may  justly  be  charged 
on  this  law.  It  is  the  latter  proposition  only  which  I  am  called 
upon  to  answer,  for  if  the  voters  give  and  keep  their  promises,  no 
objection  can  be  made  to  the  ballot  on  that  account ;  it  may  be 
said  to  be  useless,  but  cannot  be  proved  to  be  pernicious.  And 
with  respect  to  the  immorality  of  not  keeping  promises,  the  guilt 
would  lie  with  those  who  exacted  such  unlawful  promises.  To 
make  a  promise  of  a  vote  which  could  not  be  conscientiously  given, 
would  be  a  crime,  but  it  would  be  a  still  greater  crime  to  keep  it. 
The  promise  is  unnecessary  upon  any  other  supposition  than  that 
of  its  not  being  right  to  perform  it.  What  occasion  to  exact  a 
promise  of  any  man  to  do  that  which  his  own  interest  will  lead 
him  to  do?  and,  in  giving  his  vote,  he  is  called  upon  by  duty  to 
act  in  conformity  with  his  own  interest.  It  may  be  expedient  to 
instruct  such  a  man, — to  enlighten  him  on  the  subject  of  his  real 
interest,  but  here  our  efforts  should  cease,  and  we  become  criminal 
if  we  induce  him  to  act  contrary  to  the  dictates  of  his  own  con¬ 
science  ;  and,  instead  of  condemning  him  for  breaking  a  promise  so 
criminally  exacted  and  given,  the  most  enlightened  morality  would 
teach  and  require  that  such  promises  should  be  violated.  The  law 
does  not  recommend  or  encourage  any  species  of  crime  or  immo¬ 
rality, — it  is  enacted  with  a  view  to  correct  an  evil  which  is  an 


564 


SPEECH  ON  VOTING  BY  BALLOT. 


insurmountable  bar  to  good  government ;  it  requires  that  every 
man  shall  vote  according  to  bis  conscience  without  any  deceit  or 
subterfuge  ;  and  shall  such  a  law  be  given  up,  because  the  enemies 
of  good  government  may  take  advantage  of  the  respect  with  which 
men  ought  to  regard  their  promises,  in  order  to  subvert  it?  If  the 
end  we  have  in  view  be  good,  we  must  not  be  diverted  from  our 
purpose  by  any  partial  evil  which  may  attend  the  means  by  which 
we  are  to  attain  it.  All  punishment  is  an  evil,  but  is  justified  by 
the  good  end  which  it  is  to  accomplish.  It  might  much  more 
rationally  be  objected  to  the  excise  laws  that  they  should  not  have 
been  enacted,  because  they  offer  temptations  to  crimes  which  would 
not  have  been  committed  but  for  those  laws.  And  what  shall  we 
say  of  the  laws  against  usury,  and  against  the  exportation  of  the 
coin?  The  end  of  these  laws  is  bad — they  are  binding  only  on 
the  conscientious,  and  have  opened  a  wide  door  to  the  commission 
of  the  crimes  of  fraud  and  perjury.  With  these  laws  on  our 
statute-book,  are  we  to  be  discoui’aged  from  making  one,  which 
has  the  happiness  of  the  people  for  its  object,  because  it  would  be 
immoral  (as  it  is  alleged)  to  break  a  promise  unlawfully  and  immo¬ 
rally  exacted.  But,  supposing  that  the  breaking  of  such  promises 
were  immoral,  would  the  practice  be  of  long  continuance  ?  Would 
auy  man  persevere  in  exacting  promises,  when  he  found  by  expe¬ 
rience  that  the  promisers  did  not  consider  them  binding?  He 
would  not  be  tempted  to  continue  an  offence  with  great  trouble  to 
himself,  as  soon  as  he  found  that  it  was  unattended  with  advantage. 
The  immorality,  then,  to  whomsoever  it  might  attach,  would  soon 
be  at  an  end,  and  the  law  would  be  efficacious  without  even  this 
alloy. 

One  honourable  gentleman  has  observed,  that  he  is  prepossessed 
in  favour  of  open  voting,  without  being  able  to  give  any  reason 
why  he  prefers  it.  To  that  honourable  gentleman  1  might  answer, 
that  I  have  a  different  prepossession  from  him,  and  the  instinct  of 
my  mind  would  be  just  as  good,  as  an  argument,  as  the  instinct  of 
his.  In  fact,  one  mode  of  voting  can  be  preferred  to  another  only 
as  means  to  an  end ;  in  themselves  they  are  alike  indifferent. 

To  conclude,  Sir,  the  establishment  of  the  ballot  would  make 
this  House  what  it  ought  to  be,  the  real  representatives  of  the 
electors,  and  not  the  representatives  of  those  whose  situation  gives 
them  a  commanding  influence  over  the  will  of  the  electors.  1  am 
not  now  considering  whether  it  would  be  desirable  that  the  elective 
franchise  should  be  extended,  kept  on  its  present  footing,  or  con¬ 
tracted  within  narrower  limits  ;  for  on  any  of  these  suppositions,  the 
ballot  appears  to  me  to  be  equally  expedient.  Whoever  may  be 
the  electors,  the  representatives  should  represent  them  and  their 
interests,  and  not  those  whose  interests  may,  on  many  occasions, 
be  in  direct  opposition  to  theirs. 


I  N  D  E  X. 


INDEX 


*  *  *  n  signifies  Note  at  the  bottom  of  the  page. 


A. 

Accumulation  of  Capital,  effects  of 
the  labour  required  for,  on  the  value 
of  commodities,  1 6.  Effects  of,  in  an  early 
or  rude  state  of  society,  16.  And  in  a 
more  advanced  state,  17.  Capital  may  be 
accumulated  in  two  ways.  By  increased 
revenue,  or  diminished  consumption,  74, 
87.  Foreign  trade,  how  conducive  to,  75. 
Evidences  of  an  increase  of  capital,  and 
of  annual  production,  88.  Effects  of,  on 
profits  and  interest  considered,  174-180. 
Only  case,  and  that  temporary,  where  accu¬ 
mulation  of  capital  may  he  attended  with 
a  fall  of  profits,  176.  Effects  of  machinery 
in  accumulating  capital,  241-2.  Table, 
showing  the  progress  of  rent  and  profit 
under  an  assumed  augmentation  of  capital, 
376. —  See  also  Capital. 

Agriculture,  effects  of  improvements  in, 
on  rent,  4 1 .  Improvements  in,  of  two  kinds, 
42.  One  increasing  the  productive  power 
of  land  ;  the  other  obtaining  its  produce 
with  less  labour  by  improvements  in  ma¬ 
chinery,  42.  Both  lead  to  a  fall  in  the 
price  of  raw  produce,  42.  Both  affect  rent, 
but  not  equally,  42.  Ultimately  of  im¬ 
mense  advantage,  but  at  first  may  be  inju¬ 
rious  to  landlords,  43,n.  Capital  expended 
in  agricultural  improvements  becomes 
amalgamated  with  the  land,  and  cannot 
afterwards  be  separated  from  it,  158,  n. 
Not  exposed  to  the  temporary  reverses 
and  contingencies  to  which  manufactures 
are  subject,  159.  Evil  effects  of  a  transi¬ 
tion  from  war  to  peace  on  agriculture, 
161.  Suggestions  for  their  remedy  quoted 
from  Encyclopaedia  Britannica,  and  ap¬ 
proved,  161,  7!.  Considerations  which 
lead  to  the  investment  of  capital  in 
agricultural  improvements,  249,  n.  Agri¬ 
cultural  improvements  no  cause  of  the 
immediate  increase  of  rents,  251-2.  Im¬ 
provements  in,  one  of  the  causes  of  a  fall 
in  the  exchangeable  value  of  food,  379. 


Protection  to  agriculture  considered.  4  53- 
494.  Question  “Can  the  present  state  o! 
agricultural  distress  he  attributed  to  taxa¬ 
tion?”  considered,  487-491.  Report  of 
Committee  on  Agriculture  quoted,  481, 
484. — See  also  Cultivation  and  Land. 

America,  fallacy  of  the  supposed  pre¬ 
mium  on  English  currency  in  America, 
proved,  319-320. 

B. 

Ballot,  speech  of  the  author  in  Parlia¬ 
ment  on  the  plan  of  voting  by  ballot, 
printed  in  the  Scotsman  of  1  7th  July  1824, 
559  564. 

Banks,  the  establishment  of,  deprived 
the  State  of  the  sole  power  of  coining  or 
issuing  money,  214.  Consequence  of  the 
I  Bank  of  England  issuing  too  great  a  quan¬ 
tity  of  paper,  214-5.  Regulations  that 
should  he  adopted  at  the  Mint  and  the 
Bank  of  England,  quoted  from  the  author's 
“  Proposals  for  an  Economical  and  Secure 
Currency,”  21 5-8.  Provided  there  be  per¬ 
fect  security  against  abuse  of  the  power, 
it  is  immaterial  whether  paper  money  be 
issued  by  the  State  or  a  bank,  218-9.  The 
assistance  supposed  to  be  given  by  the 
Bank  to  commerce,  by  lending  money  un¬ 
der  the  market  rate  of  interest,  rather  a 
disadvantage  than  otherwise,  220-1.  The 
superiority  awarded  by  Adam  Smith  to  the 
Scotch  mode  of  affording  accommodation  to 
trade  by  cash  accounts,  fanciful,  221.  The 
establishment  of  a  bank,  how  similar  in  its 
effects  to  the  discovery  of  a  mine,  264-5 
Effect  of  Bank  restriction  bill  to  remove 
the  salutary  checks  against  an  over-issue 
of  notes,  276.  Mr  Thornton’s  account  of 
the  conduct  of  the  Bank  before  the  restric¬ 
tion,  quoted,  276.  The  Bank  of  England 
the  great  regulator  of  the  country  paper, 
283.  The  run  on  the  Bank  in  1797  caused 
by  political  alarm.  289.  Observations  on 
the  prolits  of  the  Bank  of  England  as  they 


568 


INDEX. 


regard  the  public  and  the  proprietors  of 
hank  stock,  393-45-1.  Banks  have  no 
security  on  any  system  against  general 
panics,  406.  Proposal  that  Government 
should  compel  country  banks  to  give  some 
proof  of  their  ability  to  fulfil  their  engage¬ 
ments,  409.  Public  services  of  the  Bank 
excessively  overpaid,  and  remedy  pro¬ 
posed  for  this  evil,  4 11-23.  Quotation  from 
resolutions  proposed  to  Parliament  by  the 
governor  of  the  Bank,  as  to  the  advan¬ 
tages  it  derived  from  the  public,  418. 
Statement  of  the  misapplication  of  the 
profits  and  savings  of  the  Bank,  and 
remedy  proposed,  423-435.  Table  showing 
the  profits  and  surplus  capital  of  the  Bank 
from  1797  to  1816,  427.  Difference  be¬ 
tween  a  Bank  and  all  other  trades  is,  that 
the  real  advantage  of  the  former  never 
commences  until  it  employs  the  capital  of 
olhers,  431.  Table  showing  the  amount 
annually  received  by  the  Bank,  from  1797 
to  1815,  for  receiving  contributions  on 
loans,  437.  Estimate  of  the  profits  of  the 
Bank  of  England  in  different  years,  439- 
451.  .Resolutions  proposed  concerning  the 
Bank  of  England  by  Mr  Grenfell,  451. 
Resolutions  proposed  by  MrMellish,  452-4. 
The  rate  of  interest  cannot  be- controlled 
bv  any  bank,  474.  Representation,  in 
1 S1 9,  by  the  directors  of  the  Bank  of  Eng¬ 
land  laid  before  the  Chancellor  of  the 
Exchequer,  495-7.  Plan  for  the  establish¬ 
ment  of  a  National  Bank,  503-512. 

Bank  Notes,  high  price  of  bullion  a  proof 
of  the  depreciation  of,  263-301.  State¬ 
ments  of  the  amount  of  bank-notes  in 
circulation  at  various  periods,  297-9.  Re¬ 
medy  for  their  depreciation,  366.  Table 
showing  the  average  amount  of  Bank  of 
England  notes,  including  bank  post  bills, 
in  circulation  from  1797  to  1815,  439. 
Amount  of  notes  of  5/.,  and  above  that  sum, 
in  circulation  from  1815  to  1822,  473. — 
See  also  Paper  Money. 

Barton,  Mr,  his  opinion  as  to  the  effects 
of  an  increased  fixed  capital  on  the 
condition  of  the  labouring  class,  refuted, 
241,  n. 

Blake,  Mr,  his  opinion  as  to  the  effects 
of  an  increase  in  paper  currency  on  the 
value  of  gold  as  an  exportable  commodity, 
quoted  and  commented  on,  337-9. 

Bosanquet,  Mr,  statement  of  his  objec¬ 
tions  to  the  conclusions  of  the  Bullion 
Committee,  305-7.  His  alleged  facts 
drawn  from  the  history  of  the  state  of 
exchangeconsidered,  .308-322.  His  alleged 
facts  adduced  against  the  conclusion  that 
a  rise  in  the  market  above  the  Mint  price 
of  bullion  proves  a  depreciation  of  the 
currency,  considered,  323-333.  His  ob¬ 
jections  to  the  statement  that  the  balance 
of  payments  has  been  in  favour  of  Great 


Britain,  examined,  334-339.  Considera¬ 
tion  of  his  argument  to  prove  that  the 
Bank  has  not  the  power  of  forcing  the. 
circulation  of  notes,  340-4.  Consideration 
of  his  objections  to  the  proposition,  that 
the  circulation  of  the  Bank  regulates  that 
of  the  country  banks,  348-53.  Considera¬ 
tion  of  his  opinion  that  years  of  scarcity 
and  taxes  have  been  the  sole  cause  of  the 
rise  of  prices,  354-9.  His  opinion  that 
evil  would  result  from  the  resumption  of 
cash  payments,  considered,  360-1.  Re¬ 
marks  on  his  supplementary  observations, 
363-6. 

Bounties,  on  the  exportation  of  corn 
lower  its  price  to  the  foreign  consumer, 
but  have  no  permanent  effect  on  its  price 
in  the  home  market,  181-2.  Temporary 
effects  of,  in  raising  the  price  of  corn,  con¬ 
sidered,  184-7.  May  cause  partial,  but 
not  permanent  degradation,  in  the  value 
of  money,  186-7.  Bounties  on  the  expor¬ 
tation  of  manufactures  will  raise  for  a  time 
their  market,  but  not  their  natural  price, 
188-9.  Pernicious  effect  of;  in  diverting 
a  portion  of  capital  from  its  natural  em- 
plovment,  considered,  189-192.  A  tax  on 
commodities,  to  afford  a  bounty  on  the 
production  of  corn,  would  raise  the  relative 
price  of  commodities,  and  lower  that  of 
corn,  193-5.  A  bounty  on  the  production 
of  corn,  will  produce  no  real  effect  on  the 
annual  produce  of  the  land  and  labour  of 
the  country,  195.  A  tax  on  corn  to  afford 
a  bounty  on  the  production  of  commodities, 
would  raise  the  price  of  corn,  and  rendei 
commodities  cheap,  195.  Ruinous  effects 
of  bounties  on  production,  in  conjunction 
with  a  free  foreign  commerce,  196. 

Buchanan,  Mr,  his  observations  on  Adam 
Smith’s  theory  of  productive  and  unpro¬ 
ductive  labour,  quoted,  40,  n.  Quoted  as 
to  relief  of  the  poor,  58,  n.  His  objections 
to  Adam  Smith’s  opinion  on  the  effect  of  a 
direct  tax  on  the  wages  of  labour,  129-133. 
His  mistake  in  considering  com  and  raw 
produce  at  a  monopoly  price,  because  they 
yield  a  rent,  exposed,  151.  His  erroneous 
statement  that  the  produce  of  land  cannot 
be  increased  if  the  demand  increases, 
152,  n.  His  contradictory  opinions  as  to  the 
effects  of  taxes  on  malt  and  bread  placed 
in  juxtaposition,  153.  His  judicious  re¬ 
marks  on  the  fallacy  of  Adam  Smith’s 
arguments  respecting  bounties,  189.  In¬ 
correct  views  of,  as  to  the  influence  of  a 
rise  in  the  price  of  labour  on  manufactured 
commodities,  189-190.  His  remarks  on 
the  cause  of  the  drain  of  the  specie  from 
the  Bank,  215.  His  remark  on  variations 
in  the  relative  value  of  gold  and  silver 
currency,  224.  Some  of  his  opinions  as  tc 
rent,  quoted,  and  approved  of,  243. 

Bullion,  high  price  of,  a  proof  of  the  de- 


INDEX. 


569 


preciation  of  bank  notes,  263-301.  Evils 
of  prohibiting  the  melting  or  exportation 
of  coin,  and  at  same  time  allowing  the  ex¬ 
portation  of  bullion,  265-326.  Effects  of 
the  debasement  of  the  coinage  on  the 
price  of  bullion,  273.  Causes  of  the  ex¬ 
cess  of  the  market  over  the  Mint  price  of 
gold  and  silver  bullion,  considered,  277, 
and  n. — See  also  Gold  and  Silver. 

Bullion  Committee,  statements  of  the 
amount  of  bank  notes  in  circulation,  and 
the  rates  of  Hamburgh  exchange  contained 
in  the  appendix  to  their  report,  297-9. 
Mr  Bosanquet’s  objections  to  their  con¬ 
clusions  stated,  305-7.  Causes  of  the  low 
exchange  stated,  and  remedy  proposed  by 
them,  312.  Examination  of  their  state¬ 
ment  concerning  the  par  of  exchange, 
321-2. 

C. 

Capital,  nature  of  that  which  is  neces¬ 
sary  in  an  early  state  of  society,  16.  Ef¬ 
fects  of  the  accumulation  of,  on  the  relative 
value  of  commodities — in  a  savage  state 
of  society,  16,  and  in  a  more  advanced 
state,  17.  Classed  under  the  heads  of 
circulating  and  fixed  capital,  21.  This 
division  not  essential,  21,  n.  Their  em¬ 
ployment  and  relative  powers  of  produc¬ 
tion  explained  and  considered,  21-25. 
Ett'ects  of  the  unequal  durability  of,  on 
the  value  of  commodities,  25-28.  Circu¬ 
lating  capital  of  the  monied  class,  how 
employed,  47-49.  How  the  desire  to 
employ  it  advantageously,  affects  the 
price  of  commodities,  47,  48,  49.  De¬ 
finition  of,  51.  Increase  of,  in  quantity 
and  value,  raises  the  natural  and  mar¬ 
ket  prices  of  labour.  51.  Increase  of, 
in  quantity,  but  not  in  value,  raises  the 
market  price  of  labour  only,  51.  Ile- 
lative  increase  of  capital  and  population 
in  countries  differently  situated,  consi¬ 
dered,  53-54.  Capital  may  be  accumu¬ 
lated  in  two  ways — by  increased  revenue, 
or  diminished  consumption,  74,  87.  Fo¬ 
reign  trade,  how  conducive  to  the  accu¬ 
mulation  of,  75.  Causes  which  check 
the  efflux  of,  77.  Difficult  to  define 
where  the  distinction  between  circulating 
and  fixed  capital  begins,  87.  Evidences 
of  an  increase  of,  88.  Taxes  not  neces¬ 
sarily  taxes  on  capital  or  income,  because 
laid  on  these  respectively,  88.  Illustra¬ 
tion  of  this  principle,  88.  Impolicy  of 
taxes  inevitably  falling  on,  89.  The  loss 
to  a  country  sustained  by  employing  a 
portion  of  its  capital  unproductively,  the 
sole  disadvantage  of  retaining  gold  and 
silver  in  it  by  prohibitory  laws,  139.  Ca¬ 
pital  expended  in  increasing  the  produc¬ 
tive  powers  of  land  becomes  amalgamated 
with,  and  cannot  afterwards  be  separated 


from  it,  158,  n.  Not  so  difficult  to  with 
draw  a  circulating  as  a  fixed  capital  from 
the  employment  in  which  it  is  engaged, 
161.  Effects  of  the  accumulation  of,  on 
profits  and  interest,  174-180.  No  limits 
placed  by  nature  to  the  amount  of  capital 
that  may  be  employed  in  procuring  “  the 
conveniences  and  ornaments  of  life,”  177. 
Inequality  of  profit  always  the  inducement 
to  remove  capital  from  one  employment 
to  another,  185.  Pernicious  effect  of  high 
duties  on  importation,  or  of  a  bounty 
on  exportation,  in  diverting  a  portion 
of  capital  from  its  natural  employment, 
189.  The  profits  made  by  the  employ¬ 
ment  of  capital  regulate  the  rate  of  inter¬ 
est  for  money,  220.  The  demand  for 
labour  depends  on  the  increase  of  circu¬ 
lating,  and  not  of  fixed  capital,  241,  n. 
Profits  can  only  be  lowered  by  a  compe¬ 
tition  of  capitals,  not  consisting  of  circu¬ 
lating  medium,  286.  Table  showing  the 
progress  of  rent  and  profit  under  an  as¬ 
sumed  augmentation  of  capital,  376. — See 
also  Accumulation  of  Capital. 

Capitalists. — See  Stockholders. 

Carrying  Trade,  origin  and  nature  of, 
considered,  177-8. 

Cash  Accounts,  the  superiority  of  this, 
the  Scotch  mode  of  affording  accommoda¬ 
tion  to  trade,  doubted,  221. 

Causes  and  effects  of  sudden  changes  in 
the  channels  of  trade  considered,  159-164. 

Circulation,  why  a  circulation  of  money 
can  never  be  so  abundant  as  to  overflow, 
213-4,  285.  Depreciation  of  a  circulat¬ 
ing  medium  the  necessary  consequence  of 
its  redundance,  270.  Cause  of  uniformity 
the  cause  of  goodness  in  the  medium  of 
circulation,  397-400. 

Circulation  of  Paper  — See  Paper 
Money. 

Coin,  evils  of  prohibiting  the  melting 
or  exportation  of  coin,  and  at  same  time 
allowing  the  exportation  of  bullion,  265, 
326.  Law  ineffectual  to  prevent  the 
melting  and  exportation  of  gold  coin,  265, 
279,  301,  323-6  — See  also  Gold  and  Sil¬ 
ver,  and  Money. 

Colonial  Trade,  observations  on,  204-9. 
Injustice  of  mother  countries  towards 
their  colonies,  by  restricting  their  trade, 
204.  A  mother  country  may  be  more 
benefited  by  the  restraints  she  lays  on  her 
colonics,  than  by  a  free  trade,  204-7.  Disad¬ 
vantages  of  a  monopoly  of  the  colony  trade, 
208-9. 

Commerce,  a  free  system  of,  how  bene¬ 
ficial  to  the  civilized  world,  75-76.  All 
commerce,  both  foreign  and  domestic, 
really  a  trade  of  barter,  1 37.  Effects  of 
commercial  treaties  considered,  205-7. — 
See  also  Colonial  Trade,  Foreign 
Trade,  Free  Trade,  and  Trade. 


570 


INDEX. 


Commodities,  utility  not  the  measure, 
though  absolutely  essential  to  the  ex¬ 
changeable  value  of,  9.  Commodities  pos¬ 
sessing  utility  derive  value  from  scarcity, 
and  the  quantity  of  labour  required  to 
obtain  them,  9.  The  value  of  some  de¬ 
termined  by  scarcity  alone,  9.  The  real 
price  of  every  thing  as  defined  by  Adam 
Smith,  10.  Insufficiency  of  gold  and  silver 
as  a  medium  for  determining  the  variable 
value  of  other  commodities,  11.  Com  or 
labour  no  less  variable  a  medium  than 
gold  and  silver,  11,  253.  Effects  of  im¬ 
provements  in  machinery  on  the  value 
of,  12.  Effects  of  the  accumulation  of 
capital  on  the  value  of,  17.  Economy  in 
labour  reduces  the  value  of,  18.  Those 
having  the  same  quantity  of  labour  be¬ 
stowed  on  them  will  differ  in  exchange¬ 
able  value  if  they  cannot  be  brought  to 
market  in  the  same  time,  24.  The  price 
of  those  on  which  durable  capital  is  em¬ 
ployed  varies  inversely  as  wages,  28.  The 
prices  of  those  produced  chiefly  by  labour 
vary  according  to  the  quantity  of  labour 
expended  upon  them,  28.  Gold,  a  commo¬ 
dity  obtained  underthe  same  contingencies 
as  every  other,  and  requiring  labour  and 
fixed  capital  for  its  production,  28,  263. 
The  exchangeable  value  of,  regulated  by  the 
quantities  of  labour  necessarily  bestowed 
on  their  production  under  the  most  un¬ 
favourable  circumstances,  37,  38.  Na¬ 
tural  and  market  price  of,  distinguished, 
and  how  affected  by  the  circulating  capi¬ 
tal  of  the  monied  class,  47,  48,  49.  A 
rise  of  wages  not  necessarily  productive  of 
a  rise  in  the  price  of  commodities,  57.  A 
diminution  in  wages  raises  profits,  but  has 
no  effect  on  the  price  of  commodities, 
75.  The  same  rule  which  regulates  the 
value  of  commodities  in  one  country, 
does  not  regulate  the  value  of  those 
exchanged  between  two  or  more,  75. 
Why  the  prices  of  home  commodities  are 
higher  in  those  countries  where  manu¬ 
factures  flourish,  81.  Evils  of  prohi¬ 
biting  a  free  trade  in  precious  metals 
when  the  prices  of  commodities  are  raised, 
138.  Commodities  are  at  a  monopoly 
price  when  no  device  can  augment,  their 
quantity,  1 50.  A  tax  on,  to  afford  a  bounty 
for  the  production  of  corn,  would  make  corn 
relatively  cheap,  and  manufactures  dear, 
193-195.  A  tax  on  corn  for  a  bounty  on 
the  production  of  commodities,  would  have 
the  opposite  effect,  195.  The  cost  of  pro¬ 
duction  regulates  the  price  of  commodi¬ 
ties,  232-250.  Monopolised  commodities 
vary  in  value,  and  why,  234.  Effects  of 
machinery  in  reducing  the  price  of  com¬ 
modities,  242.  The  production  of  corn 
encouraged  by  a  rise  in  its  market,  and  not 
in  its  real  price,  253.  Objections  to  the  use 


of  a  standard  commodity  considered,  400-2. 
Commodities  generally,  can  never  become 
a  standard  to  regulate  the  quantity  and 
value  of  money,  401.  Effects  of  taxes 
on  a  particular  commodity,  considered 
463-5. 

Consumers,  they,  and  not  the  growers, 
pay  taxes  on  raw  produce,  91. 

Corn,  or  labour  as  a  medium  of  value, 
as  variable  and  insufficient  as  gold  and 
silver,  11,  253.  Fluctuations  to  which 
corn  is  subject,  11.  Influence  of  the  prices 
of,  on  rent,  40.  A  rise  in  the  price  of 
corn  which  increases  the  money  wages  of 
the  labourer,  diminishes  the  money  value 
of  the  farmers’  profits,  62.  A  country 
enabled  to  manufacture  commodities  with 
much  less  labour  than  her  neighbours, 
may,  in  return  for  these  commodities,  take 
a  portion  of  the  corn  she  requires,  though 
more  fertile,  and  producing  corn  with  less 
labour  than  that  from  which  she  imports  it, 
77,  n.  The  prices  of  corn  and  labour  will 
be  relatively  higher  in  a  country  excelling 
>n  manufactures,  so  as  to  occasion  an  in¬ 
flux  of  money,  than  in  any  other,  83. 
Corn  rents  materially  affected  both  by 
tithes  and  a  money  tax,  104.  A  tempo¬ 
rary  restriction  on  the  importation  of, 
when  advisable,  161-2.  Advantage  re¬ 
sulting  from  a  relatively  low  price  of  corn, 
1 63.  Effects  of  a  low  price  of  corn  on 
wages  and  profits,  163.  Bounties  on  the 
exportation  of,  lower  its  price  to  the 
foreign  consumer,  but  have  no  permanent 
effect  on  its  price  in  the  home  market, 
181-2.  Temporary  effects  of  a  bounty  on 
its  exportation,  in  raising  its  price,  184-7. 
A  bounty  on  its  production  raised  from 
a  tax  on  commodities,  would  make  corn  re¬ 
latively  cheap  and  manufactures  dear,  193- 
195.  A  bounty  on  the  production  of  com¬ 
modities  raised  from  a  tax  on  corn  would 
have  the  opposite  effect,  195.  A  bounty 
on  the  production  of,  would  have  no  real 
effect  on  the  annual  produce  of  the  land 
and  labour  of  the  country,  195.  Benefit 
of  a  high  price  of,  to  landlords,  202-3. 
Investigation  of  the  comparative  value  of 
gold,  corn,  and  labour,  226-9.  A  fall  in 
the  value  of  corn  not  so  beneficial  to 
stockholders  as  to  farmers,  manufacturers, 
and  other  employers  of  labour,  258-9. 
Loss  of  rent  the  effect  of  a  low  price  of 
corn,  259.  Importation  of  foreign  corn 
considered,  259-260.  Essay  on  the  influ¬ 
ence  of  a  low  price  of  corn  on  the  profits 
of  stock,  371-390.  A  remunerating  price 
of  corn  considered,  459-461.  Influence  of 
a  rise  of  wages  on  the  price  of  corn,  461-3. 
Effect  of  abundant  crops  on  the  price 
of  corn,  465-7.  Effect  produced  on  the 
price  of  corn  by  Mr  Peel's  bill  for  restoring 
•  the  ancient  standard,  467-475.  Effects  o( 


INDEX. 


571 


a  low  value  of  com  on  the  rate  of  profits, 
475-8.  Under  a  system  of  protecting 
duties  giving  the  monopoly  to  the  home- 
growers  of  corn,  prices  must  be  fluctuating, 
478-486.  Project  of  advancing  money  on 
loan  to  speculators  in  corn  at  a  low  in¬ 
terest,  considered,  486-7.  Quantities  of 
oats,  wheat,  and  wheat  flour  imported 
from  Ireland  from  1818  to  1821,  490 
Account  of  the  corn  that  arrived  in  the 
port  of  London  from  ports  in  Great  Bri¬ 
tain  and  Ireland,  from  1817  to  1822,  and 
of  the  quantities  sold  in  Mark  Lane  from 
Nov.  1818  to  Nov.  1822,  498. 

Cultivation,  discouraged  by  a  tax  on  the 
rent  of  land, 102.  Not  discouraged  more  by 
tithes  and  taxes  on  land  and  its  produce, 
than  by  other  modes  of  taxation,  which 
raise  the  exchangeable  value  of  any  com¬ 
modities  in  very  general  demand,  105-9. 
Tendency  to  discourage  both  cultivation 
and  production,  an  evil  inseparable  from 
all  taxation,  109. — See  also  Agricul¬ 
ture  and  Land. 

Currency, —  Exchange  ascertained  by 
estimating  the  value  of  the  currency  of 
one  country  in  that  of  another,  84.  The 
currency  may  as  effectually  be  increased 
ny  paper  as  by  coin,  214.  Extracts  from 
the  author’s  pamphlet,  entitled,  “Proposals 
for  an  Economical  and  Secure  Currency,” 
215-8.  A  currency  is  in  its  most  perfect 
state  when  it  consists  wholly  of  paper 
money  of  an  equal  value  with  the  gold  it 
professes  to  represent,  218.  Tendency  of 
the  law  against  the  exportation  of  coin,  to 
depreciate  the  currency,  265-328.  A  re¬ 
dundant  currency  the  only  temptation  to 
export  money  for  goods,  267-8.  Exchange 
affords  a  tolerably  accurate  criterion  of  the 
debasement  of  the  currency,  274.  The  de¬ 
preciation  of  our  currency  no  cause  of  the 
high  price  of  the  funds,  287.  Different 
effects  of  its  depreciation,  on  the  value  of 
land,  and  on  that  of  the  funds,  287.  Re¬ 
medy  proposed  for  evils  in  the  currency, 
287,  300-1,  366.  Consequences  that  would 
follow  the  diminution  or  increase  by  one- 
half  of  the  currencies  of  other  countries 
(exclusive  of  England),  demonstrated, 
326-8.  Proposals  for  an  economical  and 
secure  currency,  393-454. — See  also  Gold 
and  Silver,  and  Paper  Money. 

D. 

Debt. — See  National  Debt. 

Decker,  Sir  Matthew,  —  his  opinion 
(approved  by  Adam  Smith),  that  certain 
taxes  are  repeated  and  accumulated  four 
or  five  times,  is  absurd,  140-1. 

Demand  and  Supply.  The  effect  of,  on 
prices  only  temporary,  232.  Opinion  of 
M.  Say  on  this  subject,  quoted.  233.  That 
of  Lord  Lauderdale,  quoted,  233-4.  Stric¬ 


tures  thereon,  234.  The  demand  for  la¬ 
bour  depends  on  the  increase  of  circulat¬ 
ing  and  not  of  fixed  capital,  241,  n. 

De  Tracy,  M., — correct  in  saying  that 
labouris  a  common  measure  of  the  relative 
value  of  its  products,  171-2.  Has  fallen 
into  the  same  error  as  M.  Say  as  to  the 
definitions  of  value,  riches,  and  utility, 
171,  n. 

Distress.  Whether  the  present  state  of 
agricultural  distress  can  be  attributed  to 
taxation,  considered,  487-491. 

Dividends.  Remedy  proposed  for  the 
mercantile  inconvenience  caused  by  the 
quarterly  payments  of,  to  the  public  cre¬ 
ditors,  410-1. 

Duties. — See  Taxes. 

E. 

Economy,  in  labour,  reduces  the  rela¬ 
tive  value  of  a  commodity,  18.  Illustra¬ 
tions  of  this  principle,  18. 

Edinburgh  Review, — Quotation  from 
vol.  v.  on  the  subject  of  a  bounty  on  the 
exportation  of  corn,  182.  Argument  in 
vol.  i.,  p.  183,  that  an  increase  in  the 
paper  currency  will  raise  the  paper  but 
not  the  bullion  price  of  commodities,  com¬ 
bated,  270,  n.  Edinburgh  Reviewers  mis¬ 
taken  in  supposing  that  the  exportation  or 
importation  of  bullion  takes  place  without 
reference  to  exchange,  275.  The  prin¬ 
ciples  laid  down  in  the  Review  of  the  au¬ 
thor  s  pamphlet  on  the  High  Price  of 
Bullion,  examined  and  controverted,  291- 
301. 

Encyclopedia  Britannica.  Quotation 
from  article  “  Com  Laws  and  Trade”  as  to 
withdrawal  of  capital  from  poor  soils,  1 61,  n. 
The  same  article  quoted  as  to  the  advan¬ 
tages  of  Free  Trade,  191,  v.  Essay  on 
the  Funding  System  written  by  the  author 
for  the  Supplement  to  the  sixth  edition  of) 
515-548. 

Exchange, — the  rate  of,  no  criterion  of 
the  increased  value  of  money,  83-84.  As¬ 
certained  by  estimating  the  value  of 
the  currency  of  one  country  in  the  cur¬ 
rency  of  another,  84.  May  be  ascer¬ 
tained  also  by  comparing  it  with  some 
standard  common  to  both,  84.  When 
exchanges  between  countries  are  at  par, 
138.  The  effect  of  the  exchange  would 
counterbalance  the  effect  of  high  prices 
caused  by  detaining  gold  and  silver  in  a 
country  by  prohibitory  laws,  139.  Effects 
on  exchange,  of  the  debasement  of  the 
gold  and  silver  currency  by  clipping,  or 
of  a  depreciation  of  paper  money,  273-4. 
Statements  of  the  rate  of  exchange  with 
Hamburgh  at  various  periods,  298-9.  How 
nn  unfavourable  exchange  may  be  ulti¬ 
mately  corrected,  301.  The  variations  of 
exchange  with  foreign  countries  can  never 


572 


INDEX. 


for  any  considerable  time  exceed  the  ex¬ 
pense  of  transporting  and  insuring  the 
precious  metals,  306.  Exchange  with 
Hamburgh  considered,  308-315.  Ex¬ 
change  with  Paris  considered,  316-9. 
Fallacy  of  the  supposed  premium  on 
English  currency  in  America,  proved.  319- 
320.  Causes  of  the  favourable  exchange 
with  Sweden  explained,  320-1,  and  n.  The 
par  of  exchange  between  two  countries, 
one  using  gold,  and  the  other  silver  as  a 
principal  measure  of  value,  cannot  be 
estimated  without  taking  into  account 
their  relative  value,  310-322. 

Exportation.  Bounties  on  the  expor¬ 
tation  of  corn  lower  its  price  to  the  fo¬ 
reign  consumer,  but  have  no  permanent 
effect  on  its  price  in  the  home  market,  181-2. 
Temporary  effects  of  bounties  on,  in  raising 
the  price  of  corn,  considered,  184-7.  Boun¬ 
ties  on  the  exportation  of  manufactures, 
raise  their  market,  but  not  their  natural 
price,  188-9.  Pernicious  effect  of  a  bounty 
on  the  exportation  of  manufactures  or 
corn  stated,  189.  Evils  of  prohibiting  the 
melting  or  exportation  of  coin,  and  at 
same  time  allowing  the  exportation  of 
bullion,  265,  326.  Depreciation  of  the 
circulating  medium  counteracted  by  the 
exportation  of  the  precious  metals,  270 
Law  ineffectual  to  prevent  the  melting  and 
exportation  of  gold  coin,  265,  279,  301, 
323-6. 

F. 

Farmers,  a  rise  in  the  price  of  corn, 
which  increases  the  money  wages  of  the 
labourer,  diminishes  the  money  value  of 
the  farmer’s  profits,  62.  Pent  always  falls 
on  the  consumers,  and  not  on  the  farmers, 
63.  Interest  of,  to  keep  the  price  of  raw 
produce  low,  63,  188,  477.  A  taxon  the 
farmer’s  profits  how  beneficial  to  the  land¬ 
lord,  126-7.  Pay  more  poor  rates  than 
manufacturers,  in  proportion  to  their  re¬ 
spective  profits,  157.  Injurious  effects  on 
the  condition  of  the  farmer,  of  the  con¬ 
stantly  fluctuating  prices  of  corn  under  a 
system  of  protective  duties,  477-486. 

Foreign  Trade,  effects  of  an  extension 
of,  72.  Proofs  that  the  profits  of  a  fa¬ 
voured  trade  will  speedily  subside  to  the 
general  level,  73-4.  Foreign  trade,  though 
highly  beneficial  to  a  country,  has  no  ten¬ 
dency  to  raise  the  profits  of  stock,  unless 
the  commodities  imported  are  those  on 
which  the  wages  of  labour  are  expended, 
75. 

France,  the  taille  in,  before  the  revolu¬ 
tion,  a  tax  of  the  objectionable  description, 
that  takes  out  and  keeps  out  of  the  pockets 
of  the  people,  more  than  it  brings  to  the 
state,  108.  Kates  of  seignorage  in  France 
at  different  periods,  318,  n.  Duty  on  the 


coinage  of,  and  its  effect  on  exchange, 
318,  n. 

Free  Trade,  importance  of,  to  Great 
Britain,  190,  191,  n. 

Funded  Property,  the  price  of,  not  a 
steady  criterion  of  the  rate  of  interest,  179, 
180.  The  holders  of,  how  benefited  by  the 
low  value  of  corn,  258-9.  The  funds  not 
indebted  for  their  high  price  to  the  depre¬ 
ciation  of  our  currency,  287.  Opposite 
effects  of  a  depreciated  currency  on  the 
value  of  land,  and  of  funded  property, 
287. 

Funding  System,  Essay  on  the,  written 
by  the  author  for  the  Supplement  to  the 
sixth  edition  of  the  Encyclopedia  Britan- 
nica,  515-548. 

G. 

Gilchrist,  Mr,  quotation  from  his  evi¬ 
dence  as  to  the  effect  of  the  restriction  of 
the  issues  of  the  Bank  of  England  on  the 
issues  of  the  Scotch  banks,  348-9. 

Gold  and  Silver,  being  variable,  insuffi¬ 
cient  as  a  medium  for  determining  the  va¬ 
rying  value  of  other  things,  11.  Fluctua¬ 
tions  to  which  they  are  subject,  11.  Golda 
commodity  obtained  under  the  same  con¬ 
tingencies  as  every  other,  and  requiring 
labour  and  fixed  capital  for  its  production. 
28,  263.  Gold  approaches  more  nearly  to 
an  invariable  standard  of  value  than  any 
other  commodity,  29.  Effects  of  the  dis¬ 
covery  of  the  American  mines  on  the 
value  of,  46.  Various  advantages  they 
possess  as  a  standard  for  money,  46.  The 
value  of  paper  money  influenced  by  such 
causes  only  as  influence  the  value  of  gold, 
57.  Improvements  of  manufactures  in 
any  country  tend  to  alter  the  distribution 
of  the  precious  metals  among  the  nations 
of  the  world,  78-80.  On  whom  a  tax  on 
gold  would  temporarily  and  ultimately 
fall,  114,  118.  The  market  value  of  gold 
is  ultimately  regulated  by  the  compara¬ 
tive  facility  or  difficulty  of  producing  it, 
114.  Effects  of  a  tax  on  gold,  115-8. 
Evils  of  prohibiting  a  free  trade  in  pre¬ 
cious  metals  when  the  prices  of  com¬ 
modities  are  raised,  138-9.  Value  of 
gold  and  silver  proportioned  to  the  quan¬ 
tity  of  labour  necessary  to  produce  and 
bring  them  to  market,  213.  The  obliga¬ 
tion  to  pay  their  notes  in  gold  coin  or 
bullion,  the  only  proper  control  over  the 
abuse  of  their  power  by  issuers  of  paper 
money,  215.  A  currency  is  in  its  most 
perfect  state  when  it  consists  wholly  of 
paper  money  of  an  equal  value  with  the 
gold  it  professes  to  represent,  218.  The 
use  of  paper  instead  of  gold  substitutes 
the  cfteapest  for  the  most  expensive  me¬ 
dium,  218.  Remarks  on  the  employment 
of  these  metals  in  currency,  221-2.  Their 


INDEX. 


573 


relative  values  at  different  periods  ac¬ 
counted  for,  221-4.  Inconvenience  of  using 
each  of  the  two  metals  as  a  legal  tender 
for  debts  of  any  amount  demonstrated, 
223-4.  Checks  against  an  excessive  quan¬ 
tity  of  silver  coin,  225,  n.  Investigation 
of  the  comparative  value  of  gold,  corn,  and 
labour,  226-9.  Effects  of  variations  in  the 
relative  value  of  gold  and  silverconsidered, 
270-5.  Evident  intention  evinced  by  the 
Legislature  to  establish  gold  as  the  stand¬ 
ard  of  currency  in  this  country,  272.  Cause 
of  the  trifling  rise  in  the  price  of  gold 
on  the  Continent,  328-332.  Prices  of 
gold  in  Hamburgh,  Holland,  and  England 
at  different  times,  329.  Statement  of 
the  advantages  of  silver  over  gold  as 
a  standard,  403.  —  See  also  Bullion, 
Metals,  and  Money. 


Grenfell,  Mr,  his  resolutions  proposed,* 'in  Holland  accounted  for,  175.  Some 


to  Parliament  on  the  advantages  derived 
by  the  Bank  from  the  management  of  the 
National  Debt,  and  the  balances  of  public 
money  in  their  hands,  quoted,  417-451. 


Grenville,  Lord,  extract  from  his  speech  1 79.  Legal  rates  of  interest  in  this  country 


of  15th  March  1815,  on  the  impolicy  of 
protection  to  agriculture,  484. 

Gross  Revenue,  See  Revenue. 

H. 

Hamburgh,  rates  of  exchange  between 
England  and  Hamburgh  considered,  308- 
31 5.  Silver,  the  standard  of  value  in,  31 1 . 


cerningthe  rise  and  progress,  the  redemp¬ 
tion,  and  present  state  of  the  National 
Debt  of  Great  Britain,”  quoted,  515-7, 
520,  531,  547-8. 

Holland,  low  rates  of  profits  and  interest 
in,  accounted  for,  175,  n.  Silver  the  cur¬ 
rency  of,  329. 

Houses,  rent  of,  distinguished  into  two 
parts — building  rent,  and  ground  rent, 

1 19.  Difference  between  rent  of  houses 
and  rent  of  land,  119-120.  By  whom 
taxes  on  houses  are  borne,  119-120. 

Huskisson,  Mr,  his  opinion  as  to  the 1 
effect  of  an  increase  in  the  paper  currency 
on  the  value  of  gold,  as  an  exportable 
commodity,  quoted  and  commented  on, 
337-339.  His  speech  on  the  state  of  the 
finance  and  sinking  fund  of  25th  March 
1813,  quoted,  518-9,  526. 

I. 

Importation,  effects  of  high  duties  on 
the  importation  of  corn,  considered,  187- 
192.  Pernicious  effect  of  high  duties  on 
the  importation  of  manufactures  or  of 
corn,  stated,  189.  Inexpediency  of  re¬ 
strictions  on  importation,  considered,  371- 
390.  Quantities  of  oats,  wheat,  and  wheat 
flour  imported  from  Ireland,  from  1818  to 
1821,  490. 


Improvements,  effects  of  improvements 
in  agriculture,  on  rent,  41.  Importance 
of  agricultural  improvements  considered, 
43,  n.  Effects  of  improvements  in  manu¬ 
factures,  on  the  distribution  of  the  precious 
metals,  78-80. 

Income,  taxes  not  necessarily  taxes  on 
income  or  capital,  because  laid  on  these 
respectively,  88.  Illustrations  of  this 
principle,  88.  How  the  objects  of  an  in¬ 
come  tax  may  be  obtained  without  its 
inconveniences,  94.  Tithes  a  very  burden¬ 
some  and  intolerable  tax,  because  they 
increase  with  the  gross  and  fall  on  the  net 
income,  105.  Effect  of  an  income  tax,  if 
fairly  levied,  357. 

Interest,  effects  of  the  accumulation  of 
capital  on  profits  and  interest,  considered, 
174-180.  Low  rate  of  profits  and  interest 


notion  may  be  formed  of  the  rate  of  pro¬ 
fits,  from  the  market  rate  of  interest,  178. 
In  all  countries  the  State  has  interfered 
to  prevent  a  fair  and  free  market  rate  of, 


at  different  remote  periods,  stated,  179. 
'The  rate  or,  though  ultimately  governed 
by  the  rate  of  profit,  is  subject  to  tem¬ 
porary  variations  from  other  causes,  179. 
Causes  of  these  variations  considered,  1 79- 
180.  The  price  of  funded  property  not  a 
steady  criterion  of  the  rate  of  interest,  179. 
The  rate  of  interest  for  money  regulated 
Hamilton,  Professor,  his  “  Inquiry  con-  1  by  the  rate  of  profits  derived  from  the 


employment  of  capital,  220.  The  assist¬ 
ance  supposed  tube  given  by  the  Bank  to 
commerce,  by  lending  money  under  the 
market  rate  of  interest,  rather  a  disadvan¬ 
tage  than  otherwise,  220-1.  Rate  of  in¬ 
terest  not  affected  by  the  abundance  or 
scarcity  of  money,  but  of  that  part  of 
capital  not  consisting  of  money,  284. 
Rate  of,  cannot  be  controlled  by  any 
bank,  474.  Project  of  advancing  money 
on  loan,  at  a  low  interest,  to  speculators 
in  corn,  considered,  486-7. 

L. 

Labour,  the  original  purchase  money  paid 
for  all  things,  10.  The  foundation  of  their 
exchangeable  value,  except  where  they 
cannot  be  increased  by  human  industry, 

•  10.  The  quantity  of  labour  bestowed  on 
l  the  production  of  any  object,  and  the 
quantity  it  can  command  in  the  market, 
used  by  Adam  Smith,  as  if  they  were 
|  equivalent  expressions,  1 1 .  Labour  or 
corn  as  variable  a  medium  of  value  as  gold 
and  silver,  1 1,253.  Fluctuations  to  which 
it  is  subject,  12.  Effects  of  improvements 
in  machinery  on  the  value  of,  12.  The 
relative  value  of  different  qualities  of, 
depends  much  on  the  comparative  skill  of 
the  labourer,  and  the  intensity  of  the 


574 


INDEX. 


labour  performed,  1 5.  The  exchangeable 
value  of  commodities  is  in  proportion  to 
the  labour  bestowed  not  only  on  their 
immediate  production,  but  on  all  imple¬ 
ments,  &c.,  required  to  assist  that  labour, 
17.  Economy  of  labour,  whether  in  its 
manufacture  or  the  formation  of  the 
capital  for  its  production,  reduces  the 
relative  value  of  a  commodity,  18  Illus¬ 
trations  of  this  principle,  18.  Unequal 
effect  of  a  rise  in  the  wages  of,  on  com¬ 
modities  produced  by  circulating  and  by 
fixed  capital,  21.  No  rise  in  the  value  of', 
without  a  fall  of  profits,  23.  The  price 
of,  rises  with  every  difficulty  of  providing 
for  the  maintenance  of  labourers,  27,  n. 
With  every  rise  in  the  price  of,  new  temp¬ 
tations  are  offered  to  the  use  of  machinery, 
27,  n.  The  quantity  of,  necessary  to  obtain 
the  produce  of  land,  regulates  the  rate 
of  rent,  profit,  and  wages,  31.  Adam 
(/{Smith’s  theory  of  productive  and  un¬ 
productive  labour  considered,  39,  n.  Mr 
JBuchanan’s  observations  thereon  quoted, 
40,  n.  Natural  and  market  prices  of,  de¬ 
fined,  50.  Increase  of  capital  in  quantity 
and  value  raises  the  natural  and  market 
prices  of  labour,  51.  Increase  of  capital 
in  quantity,  but  not  in  value,  raises  the 
market  price  of  labour  only,  51.  Causes 
of  the  difference  between  the  natural 
prices  of  labour  in  different  countries,  52, 
and  7i.  A  diminution  in  the  wages  of, 
raises  profits,  but  has  no  effect  on  price, 
75.  The  prices  of  corn  and  labour  will 
be  relatively  higher  in  a  country  excelling 
in  manufactures,  so  as  to  occasion  an 
influx  of  money,  than  in  any  other,  83. 
Investigation  of  the  comparative  value 
of  gold,  corn,  and  labour,  226-9.  The 
demand  for,  depends  on  the  increase 
of  circulating,  and  not  of  fixed  capital, 
241,  n. 

Labourers,  how  their  happiness  and 
comfort  are  affected  by  the  relation  be¬ 
tween  the  natural  and  market  prices  of 
labour,  51.  The  supply  of,  and  demand 
for  labourers  one  of  the  causes  of  a  rise  or 
fall  of  wages,  53.  A  rise  in  wages  not 
always  productive  of  comfort  to,  55-56. 
Influence  of  machinery  on  the  interests  of 
the  labouring  classes,  considered,  236-242. 
When  and  how  the  use  of  machinery  may 
be  injurious  to  their  interests,  238. 

Land,  the  division  of  the  whole  produce 
of,  between  landlords,  capitalists,  and  la¬ 
bourers,  the  criterion  of  the  rise  or  fall  of 
rent,  profit,  and  wages,  31.  The  quantity 
of  labour  necessary  to  obtain  the  produce 
of,  regulates  the  rate  of  rent,  profit,  and 
wages,  31.  Nature  of  the  rent  of,  consi¬ 
dered,  34.  The  cultivation  of  inferior,  one 
of  the  causes  of  the  origin  of  rent,  36. 
Effects  of  imu'-ovements  which  increase 


its  productive  powers,  and  obtain  its  pro¬ 
duce  with  less  labour,  42.  One  of  the 
objections  to  tithes  is,  that  it  increases  with 
the  gross  and  falls  on  the  net  produce  ot 
land,  105.  Different  modes  in  which  a 
land-tax  may  be  levied,  107.  Capital 
expended  in  increasing  the  productive 
power  of  land  becomes  incorporated  with, 
and  cannot  afterwards  be  separated  front 
it,  1 58,  n.  Examination  of  Adam  Smith’s  > 
doctrine  concerning  the  rent  ofland,  197- 
203.  Different  effects  of  a  depreciated 
currency  on  the  value  of  land,  and  that  of 
the  funds,  287. 

Landlords,  agricultural  improvements, 
though  at  first  injurious,  are  ultimately 
beneficial  to,  43,  n.  Difficulty  of  produc¬ 
tion,  how  beneficial  to,  44.  illustrations 
of  this,  44,  n.  A  tax  on  rent  would  fall 
wholly  on,  102-107.  As  rent  is  constituted, 
it  would  be  a  tax  on  the  profits  of  the 
landlord,  and  would  discourage  cultivation, 
102.  As  landlords  are  compensated  by 
the  rise  of  raw  produce,  and  as  wages,  and 
through  them  profits  are  affected,  they  are 
the  class  peculiarly  exempted  from  the 
effect  of  tithe,  and  every  other  land-tax 
of  that  kind,  109.  A  taxon  the  farmer’s 
profits,  how  beneficial  to  the  landlord, 
126-7.  A  tax  on  wages  does  not  fall  on 
the  landlords  as  such,  but  on  the  profits  of 
stock,  136-140.  So  far  only  as  landlords  di¬ 
rectly  employed  labour  in  the  expenditure 
of  their  revenues,  by  supporting  menial  ser¬ 
vants,  &c.,  would  they  be  subject  to  its 
operation,  140.  Have  a  decided  interest 
in  the  rise  of„the  natural  price  of  corn, 
189,  378.  Benefit  of  a  high  price  of  corn 
to  them,  202-3,  378. 

Land  Tax,  virtually  a  tax  on  rent,  107. 
Different  modes  in  which  a  land-tax  may 
be  levied,  107. 

Lauderdale,  Lord,  his  theory  that  the  7- 
scarcity  and  monopoly  of  a  commodity 
increase  wealth,  controverted,  167.  In¬ 
conclusive  in  his  arguments  as  to  the  effect 
of  the  Mint  regulation  on  the  relative 
value  of  gold  and  silver.  224-5,  n.  Opinion 
of.  on  the  influence  of  demand  and  supply 
on  prices,  quoted  and  commented  on, 
233-4. 

Legislature,  wages  should  never  be  con¬ 
trolled  by  the,  57. 

>  Liverpool,  Lord,  his  Letter  to  the  King 
on  the  coinage,  quoted,  333. 

Loans,  observations  on  loans  to  the 
State,  146-9,  180,  n.  Project  of  advancing 
money  on  loan  at  low  interest  to  specu¬ 
lators  in  corn,  considered,  486-7. — See  also 
,  National  Debt. 

Locke,  Mr,  the  inconvenience  of  em¬ 
ploying  each  of  two  metals  as  legal  tender 
demonstrated  by,  223.  Of  opinion  that 
the  law  forbidding  the  melting  and  ex- 


INDEX. 


575 


porting  coin  was  inoperative,  324.  His 
theory  relative  to  the  recoinage  in  1696, 
considered,  332-3. 

Luxuries,  the  advantages  and  disad¬ 
vantages  of  taxes  on,  stated,  141-5.  The 
only  effect  of  a  tax  on,  is  to  raise  their 
price,  146.  It  falls  wholly  on  the  consumer, 
and  neither  increases  wages  nor  lowers 
profits,  146. 

M. 

Machinery,  effects  of  improvements  in, 
on  the  value  of  labour,  1 2.  Every  rise  in 
the  price  of  labour  offers  new  temptations 
to  the  use  of,  27,  it.  How  beneficial  to 
the  public,  27.  When  wages  rise,  com¬ 
modities  made  by  machines  fall,  and  that 
in  proportion  to  their  durability,  27. 
Effects  of  improvements  in  agricultural 
machinery  on  the  price  of  raw  produce, 
and  on  rent,  42.  Means  of  abridging 
labour,  either  in  the  manufacture  or  con¬ 
veyance  of  goods,  operate  on  price,  but 
not  on  profits,  75.  The  discovery  of,  tends 
to  raise  the  relative  value  of  money,  and 
to  encourage  its  importation,  128.  Ma¬ 
chinery,  and  natural  agents  acting  gratui¬ 
tously,  add  to  a  commodity  value  in  use, 
but  not  value  in  exchange,  172-3.  Its 
influence  on  the  interests  of  the  different 
classes  of  society  considered,  235-242. 
The  author’s  former  views  on  this  subject 
corrected,  235-237.  The  use  of,  though 
advantageous  to  landlords  and  capitalists, 
often  injurious  to  the  interests  of  the  la¬ 
bouring  class,  236.  When  and  how  injuri¬ 
ous  to  the  latter,  238.  Advantages  of,  in 
accumulating  capital  and  reducing  prices, 
considered,  241-2. 

Malt,  observations  on  the  tax  on, 
152-3. 

Malthus,  Mr.  In  1815,  his  “  Enquiry 
into  the  Nature  and  Progress  of  Kent,” 
and  the  “  Essay  on  the  Application  of 
Capital  to  Land,”  by  a  Fellow  of  Univer¬ 
sity  College,  Oxford,  presented,  nearly 
at  the  same  moment,  the  true  doctrine 
of  rent,  5.  His  remarks  on  the  doctrine 
that  the  relative  values  of  commodities 
will  be  governed  by  the  relative  quanti¬ 
ties  of  labour  bestowed  on  their  pro¬ 
duction,  30,  n.  Quoted  as  to  the  price  of 
labour  being  indicative  of  the  wants  of 
society  respecting  population,  131.  Ex¬ 
amination  of  his  opinions  on  rent,  243- 
249.  His  exposition  of  the  causes  of 
the  rise  in  price  of  raw  produce  in  rich 
and  progressive  countries,  quoted,  250. 
W  rong  in  supposing  that  increase  of  po¬ 
pulation,  and  agricultural  improvements 
are  causes  of  the  increase  of  rent,  250-2. 
His  supposition  that  the  net  income  of  the 
country  is  diminished  in  proportion  to  its 
gross  income  disproved,  256-7.  Remarks 


on  his  “  Inquiry  into  the  Nature  and 
Progress  of  Kent,”  and  “The  Grounds 
of  an  Opinion  on  the  Policy  of  Restrict¬ 
ing  the  Importation  of  Foreign  Corn,” 
371-390.  His  definition  of  the  rent  of  land, 
371. 

Mansfield,  Sir  James,  his  opinion  as  to 
the  mode  of  compelling  the  Governor  and 
Directors  of  the  Bank  to  produce  their 
books,  &c.,  quoted,  434. 

Manufactures,  improvements  of,  in  any 
country  tend  to  alter  the  distribution  of 
the  precious  metals  among  the  nations  of 
the  world,  78-80.  Why  the  prices  of  homo 
commodities  are  higher  in  those  countries 
where  manufactures  flourish,  81.  Are 
subject  to  reverses  and  contingencies  from 
which  agriculture  is  free,  159.  Boun¬ 
ties  on  the  exportation  of,  will  raise  for 
a  time  their  market,  but  not  their  natural 
price,  188.  The  inconveniences  resulting 
from  levying  a  tax  on  manufactured  com¬ 
modities  at  an  early  period  of  their 
manufacture,  are  greatly  magnified,  230- 
231. 

Manufacturers.  They  pay  less  poor 
rates  than  farmers,  in  proportion  to  their 
respective  profits,  157.  Have  no  interest 
in  the  rise  of  the  natural  price  of  their 
commodities,  188.  Are  benefited  while 
the  market  price  of  their  productions  ex¬ 
ceeds  their  natural  price,  189. 

Metals,  the  value  of,  subject  to  varia¬ 
tions  like  that  of  every  other  commodity, 
45.  Effects  of  the  discovery  of  the  Ame¬ 
rican  mines  on  the  value  ofi  46.  Inconve¬ 
nience  demonstrated,  of  employing  each 
of  two  metals  as  legal  tender  for  debts  of 
any  amount,  223-4.  Laws  which  regulate 
the  distribution  of  the  precious  metals 
throughout  the  world,  270.  A  circulating 
medium  consisting  of  two  metals,  not  con¬ 
ducive  to  the  existence  of  a  permanent 
measure  of  value,  270. 

Mellish,  Mr,  his  resolutions  proposed 
concerning  the  Bank  of  England,  452-4. 

Mines.  The  principle  which  regulates 
the  rent  of  land  governs  also  that  of  mines, 
45,  199.  Value  of  their  produce  subject 
to  variation  like  that  of  every  other  com¬ 
modity,  45.  Effects  of  discovering  Ame¬ 
rica  and  its  rich  mines,  on  the  value  of 
metals,  46.  Improvement  in  the  facility 
of  working  the  mines  of  precious  metals 
will  diminish  the  value  of  money  generally, 
83.  Observations  on  the  rent  of  mines, 
198-200. 

Mint,  regulations  that  should  be  adopted 
at  the  Mint,  and  the  Bank  of  England, 
215-8. 

Money,  not  an  invariable  measure  of 
value,  28.  Variations  to  which  it  is  sub¬ 
ject.  28.  Effects  of  variations  in  the  value 
of,  on  the  price  of  commodities,  31.  A 


576 


INDEX. 


rise  in  wages,  from  an  alteration  in  its 
value,  produces  a  general  effect  on  price, 
and  none  on  profits,  31.  Variations  in  its 
value,  however  great,  do  not  affect  the 
rate  of  profits,  32.  Advantages  possessed 
l\v  gold  and  silver  as  a  standard  for  money, 
46.  Improvements  of  manufactures  in 
any  country  tend  to  alter  the  distribution 
of  money  among  the  nations  of  the  world, 
78-80.  Different  value  of  money  in  dif¬ 
ferent  countries  accounted  for,  81-3.  No 
effect  produced  on  the  rate  of  profits  either 
from  the  influx  or  efflux  of  money,  81. 
Improvement  in  the  facility  of  working 
the  mines  of  precious  metals  will  diminish 
the  value  of  mone3r  generally,  83.  The 
rate  of  exchange  no  criterion  of  the  value 
of,  84.  A  fall  in  the  value  of,  one  of  the 
causes  of  the  high  price  of  provisions,  94. 
The  demand  for,  regulated  entirely  by  its 
value,  and  its  value,  by  its  quantity,  114. 
The  discovery  of  machinery  tends  to  raise 
the  relative  value  of  monejq  and  encourage 
its  importation,  and  all  taxation  to  lower 
it,  and  encourage  its  exportation,  128. 
Low  value  of,  in  Spain,  prejudicial  to  its 
manufactures  and  commerce,  137.  Ob¬ 
servations  on  the  rates  of  interest  for,  178- 
180.  The  value  of,  though  partially,  not 
permanently  degraded  by  a  bounty  on 
com,  186-7.  The  quantity  of  employed 
in  a  country,  dependent  on  its  value,  213. 
Effects  of  the  State  charging  a  seignorage 
on  coining  money,  213-4,  225.  The  esta¬ 
blishment  of  banks  deprived  the  State  of 
the  sole  power  of  coining  or  issuing  money, 
214.  An  obligation  to  pay  their  notes  in 
gold  coin  or  bullion,  the  only  proper  con¬ 
trol  over  the  abuse  of  their  power  by  the 
issuers  of  paper  money,  215.  Temptation 
to  export  money  in  exchange  for  goods, 
never  arises  but  from  a  redundant  cur¬ 
rency,  267.  The  rate  of  interest  not 
affected  by  the  abundance  or  scarcity  of 
money,  but  of  that  parr  of  capital  not 
^consisting  of  money,  284.  Adam  Smith’s 
distinction  between  money  and  revenue, 
quoted,  284.  Commodities,  generally,  can 
never  become  a  standard  to  regulate  the 
quantity  and  value  of  money,  401.  Pro¬ 
ject  of  advancing  money  on  loan  at  a  low 
interest  to  speculators  in  corn,  considered, 
486-7. — See  also  Currency,  Gold  and 
Silver,  Mines,  and  Paper  Money. 

Monopoly,  definition  of  monopoly  price, 
150.  On  what  it  depends,  150.  Why 
monopolized  commodities  vary  in  value, 
234. 

Musliet,  Mr,  his  acknowledgment  of  the 
inaccuracy  of  his  first  tables  as  to  ex¬ 
change,  quoted,  310-1.  The  principle  on 
which  his  amended  tables  are  constructed, 
310.  Objections  stated  to  the  accuracy  of 
his  amended  tables,  311. 


N. 

National  Debt,  nature  and  effects  ol, 
considered,  146-150.  Melon’s  definition 
of  the  nature  and  effects  of  a  national 
debt,  as  given  by  Say,  quoted,  147.  Best<£ 
mode  of  diminishing  it,  considered,  149. 
No  sinking  fund  can  be  efficient  for  dimi¬ 
nishing  the  debt,  unless  derived  from  the 
excess  of  the  public  revenue  over  the  ex¬ 
penditure,  149.  Mercantile  inconvenience 
resulting  from  the  quarterly  payment  of 
dividends  to  the  public  creditors,  and  re¬ 
medy  suggested,  410-41 1.  Table  showing 
the  amount  annually  paid  by  the  public, 
from  1797  to  1815,  for  management  of  the 
British,  Irish,  German,  and  Portuguese 
debt,  437.  Table  showing  the  total  amount 
annually  received  by  the  Bank,  from  1797 
to  1815,  for  receiving  contributions  on 
loans,  437.  Table  showing  the  total 
amount  of  unredeemed  debt  on  1st  Feb¬ 
ruary  1815,  438.  Hamilton’s  “  Inquiry 
concerning  the  Rise  and  Progress,  the 
Redemption,  and  Present  State  of  the 
National  Debt  of  Great  Britain,”  515-7, 
520,  531.  Consideration  of  the  best  mode 
of  providing  for  our  annual  expenditure 
in  war  and  peace,  and  whether  a  fund 
raised  for  the  purpose  of  paying  debt  will 
not  be  misapplied  by  ministers,  538-548. 

Net  Revenue. — See  Revenue. 

Newton,  Sir  Isaac,  his  report  on  the 
causes  of  the  exportation  of  silver  coin, 
333. 

P. 

Paper  Money,  value  of,  influenced  by 
such  causes  only  as  influence  the  value  of 
gold,  57.  Circulation  of,  explained,  214. 
The  currency  may  as  effectually  be  in¬ 
creased  by  paper  as  by  coin,  214.  Pay¬ 
ment  in  specie  not  necessary  to  secure  its 
value,  214.  The  quantity  issued  must  be 
regulated  according  to  the  value  of  the 
standard  metal,  214,  403-4.  Why  the 
Bank  of  England  was  liable  to  be  drained 
of  specie  for  its  paper  currency,  214-5. 
An  obligation  to  pay  their  notes  in  gold 
or  bullion,  the  only  proper  control  over 
the  abuse  of  their  power  by  issuers  of 
paper  money,  215.  A  currency  is  in  its 
most  perfect  state,  when  it  consists  wholly 
of  paper  money  of  an  equal  value  with  the 
gold  it  professes  to  represent,  218.  The 
use  of  paper  instead  of  gold  substitutes  the 
cheapest  for  the  most  expensive  medium, 
213.  Provided  there  be  perfect  security 
against  abuse  of  the  power,  it  is  immaterial 
whether  paper  money  is  issued  by  the 
State  or  by  banks.  218-219.  Illustrations 
of  this,  219-220.  Effect  of  redundancy  on 
the  value  of  paper  money,  278.  The  Bank 
of  England  is  the  great  regulator  of  coun  try 
paper,  283.  Advantages  attending  the 


INDEX. 


577 


use  of,  397-9. — See  also  Currency  and 
Money-. 

Paris,  exchange  between  England  and 
Paris  considered,  316-9. 

Parliamentary  Reform,  observations  on, 
by  the  author,  printed  in  the  Scotsman  of 
the  24th  April  1824,  551-556. 

Peace,  the  commencement  of,  after  a 
long  war,  or  the  commencement  of  war 
after  a  long  peace,  how  productive  of 
distress  in  trade,  1 60.  The  transition  from 
war  to  peace,  how  injurious  to  agriculture, 
161. 

Pearse,  Mr,  his  statement  presented  to 
the  Bullion  Committee,  298. 


one  of  the  causes  of  the  high  price  of  pro¬ 
visions,  94.  Price  of  labour  indicative  of 
the  wants  of  society  respecting  population, 
131.  Why  population  increases  more 
rapidly  in  America  than  in  Europe,  249. 
Increase  of,  no  cause  of  the  rise  of  rent. 
250. 

Precious  Metals. — See  Gold  and  Sil¬ 
ver. 

Price,  Adam  Smith’s  definition  of  real, 
quoted,  10.  Of  labour  necessarily  rises 
with  every  difficulty  of  providing  for  the 
maintenance  of  men,  27,  n.  With  every 
rise  in  the  price  of  labour  new  temptations 
are  offered  to  the  use  of  machinery,  27,  n. 
Peel,  Mr  (now  Sir  Robert),  effect  of  his ''Effects  of  variations  in  the  value  of  money, 


bi.,  ior  restoring  the  ancient  standard,  on 
the  price  of  corn,  467-475. 

Perceval,  Mr,  his  letter,  in  1808,  to  the 
Governor  and  Deputy  Governor  of  the 
Bank,  as  to  the  participation  of  the  public 
in  its  advantages,  419.  His  proposals  to 
the  Bank,  420. 


Petty,  Lord  Henry,  his  speech  in  1807 ''corn,  40.  Effects  of  agricultural  improve- 


on  the  accumulation  of  the  sinking 
quoted,  532-3. 


fund, 


poor,  58,  n.  Remonstrance  of  the  Bank 
to  Mr  Pitt,  as  to  their  embarrassment, 
277,  n.  Ilis  speech,  on  the  sinking  fund, 
of  17th  February  1792,  521.  Comparison 
of  the  effects  of  his  plan,  and  that  of  Mr 
Vansittart,  on  the  sinking  fund,  523-6. 
His  speech  in  1786  on  the  sinking  fund, 
542-3. 

Political  Economy,  principal  problem 
in,  to  determine  the  laws  regulating  the 
distribution  of  the  earth’s  produce,  5. 
Many  of  the  errors  in,  have  arisen  from 
considering  an  increase  of  riches  and  an 
increase  of  value  as  synonymous,  and  from 
unfounded  notions  as  to  a  standard  mea¬ 
sure  of  value,  166. 

Poor  Laws,  pernicious  effects  of,  con¬ 
sidered,  57,  58,  59.  Their  evil  tendency 
developed  by  Mr  Malthus,  58.  Remedy- 
pointed  out,  58. 

Poor  Rates,  nature  of,  155.  Their  ope¬ 
ration  under  different  circumstances,  con¬ 
sidered,  155-8.  How  levied,  155-6.  A 
much  larger  amount  falls  on  the  farmer 
than  on  the  manufacturer,  in  proportion  to 
their  respective  profits,  1  57. 

Population,  increase  of,  one  of  the  pri¬ 
mary  causes  of  the  origin  of  rent,  36. 
The  difficulty  of  providing  food  for  an 
augmented  population  one  of  the  causes 
of  a  rise  of  rent,  40.  Improvements  in 
agriculture  give  a  great  stimulus  to  popu¬ 
lation,  43,  n.  Relative  increase  of  popu¬ 
lation  and  capital  in  countries  differently 
situated,  considered,  53-54.  The  demand 
of  an  increasing  population,  ultimately 
attended  by  increased  cost  of  production, 


on  the  price  of  commodities,  31.  A  rise 
in  wages  from  an  alteration  in  the  value 
of  money,  produces  a  general  effect  on 
price,  and  none  on  profits,  31.  Of  corn  is 
regulated  by  that  produced  with  the  great¬ 
est  quantity  of  labour,  40.  Rent  does  not 
enter  as  a  component  part  into  the  price  of 


ments  on  the  price  of  raw  produce,  42. 
Natural  and  market  price  of  commodities 


Pitt,  Mr,  quoted  as  to  the  relief  of  the  •  distinguished,  and  how  affected  by  the 

"  circulating  capital  of  the  monied  class. 
47-8-9.  Natural  and  market  prices  of 
labour  defined,  50.  How  the  relation 
between  its  market  and  natural  prices 
affect  the  comfort  and  happiness  of  the 
labourer,  5 1 .  Increase  of  capital  in  quan¬ 
tity  and  value,  raises  the  natural  and 
market  prices  of  labour,  51.  Increase  of 
capital  in  quantity,  but  not  in  value,  raises 
the  market  price  only',  51.  Causes  of  the 
difference  between  the  natural  prices  of 
labour  in  different  countries,  52,  and  n. 
The  price  of  commodities  on  which  wages 
and  labour  are  expended,  one  of  the 
causes  of  their  rise  or  fall,  53.  Arise  in  the 
price  of  commodities  not  necessarily  pro¬ 
duced  by  a  rise  in  wages,  57.  Interest  of 
the  farmer  to  keep  the  price  of  produce 
low,  63,  477.  Means  of  abridging  labour, 
either  in  the  manufacture  or  conveyance 
of  goods,  operate  on  price,  but  not  on 
profits,  75.  A  diminution  of  the  wages 
of  labour  raises  profits,  but  produces  no 
effect  on  price,  7  5.  Explained  why  the 
prices  of  home  commodities  are  higher 
in  those  countries  where  manufactures 
flourish,  81-3.  A  tax  on  raw  produce 
raises  its  price,  91.  Monopoly  price  con¬ 
sidered,  150-1-2-3.  Difference  between 
the  regulation  of  the  price  of  com,  and  of 
the  price  of  manufactured  commodities, 

1 50.  The  influence  of  demand  and  supply 
on  prices  only  temporary,  232.  The  cost 
of  production  regulates  the  real  price  of 
commodities,  232-250.  Effects  of  ma¬ 
chinery  in  reducing  the  price  of  commo¬ 
dities,  242.  A  rise  in  the  market  price  of 
O  O 


578 


INDEX. 


corn  encouiages  its  production,  253.  High 
price  of  bullion  a  proof  of  the  depreciation 
of  banknotes,  263-290.  Causes  of  the  excess 
of  the  market  over  the  Mint  price  of  gold 
and  silver  bullion  considered,  277,  and  n. 
Influence  of  a  low  price  of  corn  on  the 
profits  of  stock  considered,  371-390.  A 
remunerating  price  of  corn  considered, 
459-461.  Influence  of  a  rise  of  wages  on 
the  price  of  corn,  461-3.  Effect  of  abun¬ 
dant  crops  on  the  price  of  corn,  465-7. 
Effect  produced  on  the  price  of  corn 
by  Mr  Peel’s  bill  for  restoring  the  an¬ 
cient  standard,  467-475.  Injurious  ef¬ 
fects  of  the  constantly  fluctuating  prices 
of  corn,  477.  Under  a  system  of  protec¬ 
tive  duties  giving  the  monopoly  to  the 
home  growers  of  corn,  prices  must  be  fluc¬ 
tuating,  478-486. 

Produce,  the  division  of  the  produce  of 
land  among  landlords,  capitalists,  and 
labourers,  the  criterion  of  the  rise  or  fall 
of  rent,  profit,  and  wages,  31.  The  quan¬ 
tity  of  labour  necessary  to  obtain  it,  regu¬ 
lates  the  rate  of  rent,  profit,  and  wages, 
31.  Effects  of  agricultural  improvements 
on  the  price  of  raw  produce,  42.  A  rise 
in  the  price  of  raw  produce  lowers  agri¬ 
cultural  as  well  as  manufacturing  profits, 
63.  Nature  and  effects  of  a  tax  on  raw 
produce,  91.  The  price  of  raw  produce 
rises  in  proportion  to  the  tax,  which  thus 
falls  on  the  consumer,  91-3.  Gijections 
to  taxing  the  produce  of  land  considered, 
and  answered,  91-101.  A  tax  on  raw 
produce,  and  on  the  necessaries  of  the 
labourer,  raises  wages  and  lowers  profits, 
93.  One  of  the  objections  to  tithes  is,  that 
they  increase  with  the  gross,  and  fall  on 
the  net  produce  of  land,  105.  A  laud  tax 
imposed  on  all  cultivated  land  is  a  tax  on 
produce,  and  will  raise  its  price,  107.  Mr 
Malthus’  exposition  of  the  causes  of  the 
rise  in  price  of  raw  produce  in  rich  and 
progressive  countries,  quoted,  250. 

Producer,  remarks  on  the  inconvenien- 
cies  supposed  to  result  from  the  payment 
of  taxes  by  the,  230-1. 

Production,  agricultural  improvements 
which  increase  it,  though  at  first  injurious, 
are  ultimately  beneficial  to  landlords, 
43,  n.  Difficulty  of,  how  beneficial  to 
andlords,  44.  Illustration  of  this,  44,  n. 
Tendency  to  discourage  both  cultivation 
and  production,  an  evil  inseparable  from 
all  taxation,  109.  The  cost  of,  ulti¬ 
mately  regulates  the  price  of  commodi¬ 
ties,  232-250. 

Profits.  No  rise  in  the  value  of  labour, 
without  a  fall  of,  23.  A  rise  in  wages, 
from  an  alteration  in  the  value  of  money, 
produces  a  general  effect  on  price,  and 
therefore  none  on  profits,  31.  Quantity 
of  labour  in  obtaining  the  produce  of 


land,  the  proper  criterion  forjudging  ol 
the  rate  of  profit,  rent,  and  wages,  31. 
Rata  of,  not  affected  by  variations  in  the 
value  of  money,  32.  How  affected  by  the 
circulating  capital  of  the  monied  class, 
47,  48,  49.  A  rise  in  the  price  of  corn, 
which  increases  the  money  wages  of  the 
labourer,  diminishes  the  money  value  of 
the  farmer’s  profits,  62.  Agricultural,  as 
well  as  manufacturing  profits,  are  lowered 
by  a  rise  in  the  price  of  raw  produce,  if 
accompanied  by  a  rise  of  wages,  63.  Proofs 
that  profits  depend  on  the  quantity  of  la¬ 
bour  requisite  to  provide  necessaries  for 
labourers  on  that  land,  or  with  that  capi¬ 
tal,  which  yields  no  rent,  65-70.  Effects 
of  an  extension  of  foreign  trade  on  profits, 
72.  Proofs  that  the  profits  of  a  favoured 
trade  will  speedily  subside  to  the  general 
level,  73-74.  These  apply  equally  to  home 
trade,  75.  Foreign  trade  has  no  tendency 
to  raise  the  profits  of  stock,  unless  the  com¬ 
modities  imported  are  those  on  which  the 
wages  of  labour  are  expended,  75.  Means 
of  abridging  labour,  either  in  the  manu¬ 
facture  or  conveyance  of  goods,  operate 
on  price,  but  not  on  profits,  7  5.  In  one 
and  the  same  country  profits  are  always 
on  the  same  level,  but  not  so  between 
different  countries,  76.  No  effect  produced* 
on  the  rate  of,  either  from  the  influx  or 
efflux  of  money,  81.  Profits  depend,  not 
on  nominal,  but  real  wages,  82.  A  tax  on 
raw  produce,  and  the  necessaries  of  the 
labourer,  raises  wages  and  lowers  prefits, 
93.  Taxes  on  necessaries  virtually  taxes 
on  profits,  122.  Taxes  on  profits  consi¬ 
dered,  122-8.  A  tax  on  the  profits  of  the 
farmer,  how  beneficial  to  the  landlord, 
126-7.  A  tax  on  wages,  in  fact,  a  tax  on 
profits,  136.  Effects  of  a  low  price  of  corn 
on  wages  and  profits,  1 63.  Effects  of  the 
accumulation  of  capital  on  profits  and 
interest,  considered,  174-180.  Low  rate 
of  profits  and  interest  in  Holland  account¬ 
ed  for,  175,  n.  Only  case,  and  that  tem¬ 
porary,  in  which  the  accumulation  of 
capital  may  be  attended  with  a  fall  of 
profits,  176.  Extremely  difficult  to  deter¬ 
mine  the  rate  of  the  profits  of  stock,  178. 
Some  notion  of  the  rate  of  profits  may  be 
formed  from  the  market  rate  of  interest, 
178.  Inequality  of  profit  always  the  in¬ 
ducement  to  remove  capital  from  one 
employment  to  another,  185.  Profits  can 
only  be  lowered  by  a  competition  of  capitals 
not  consisting  of  circulating  medium,  286. 
Influence  of  a  low  price  of  corn  on  the 
profits  of  stock  considered,  371-390.  Table 
showing  the  progress  of  rent  and  profit 
under  an  assumed  augmentation  of  capital, 
376.  Observations  on  the  profits  of  the 
Bank  of  England,  393.  Statements  as  to 
their  misapplication,  and  remedy  proposed 


INDEX. 


579 


423-435.  Table  showing  the  profits  of  the 
Bank  from  1707  to  1816,  427.  Estimate 
of  the  profits  of  the  Bank  in  different 
years,  439-451.  Effects  of  a  low  value  of 
corn  on  the  rate  of  profits,  47  5-8. 

Prohibition.  Effects  of  prohibiting  the 
importation  of  corn  considered,  188-9. 

Property.  Impolicy  of  taxes  on  the 
transference  of,  89.  Too  much  facility 
cannot  be  given  to  the  conveyance  and 
exchange  of,  89. 

Protection.  Agricultural  protection  con¬ 
sidered,  459-494.  Under  a  system  of  pro¬ 
tecting  duties  giving  the  monopoly  to  the 
home  growers  of  corn,  prices  must  be 
fluctuating,  478-486. 

Provisions.  Causes  of  the  high  price 
of,  94.  1st,  A  deficient  supply,  94-5. 
2d,  A  gradually  increasing  demand,  ulti¬ 
mately  attended  with  increased  cost  of 
production,  95-G.  3d,  A  fall  in  the  value 

of  money,  96.  4th,  Taxes  on  necessaries, 
96-7. 

It. 

Rent,  definition  of,  34.  The  nature 
of,  in  the  strict  sense,  and  in  the  popular 
one,  35.  The  term,  as  used  by  Adam 
Smith,  34.  Circumstances  from  which  it 
originates,  36.  Progress  of,  considered, 
36.  Rise  of,  the  effect  of  the  increasing 
wealth  of  the  country,  and  the  difficulty 
of  providing  food  for 'its  augmented  popu¬ 
lation,  40.  Influence  of  the  prices  of  corn 
on,  40.  Effects  of  agricultural  improve¬ 
ment  on,  41,  42,  43.  The  principle  which 
regulates  the  rent  of  land,  governs  also 
that  of  mines,  45.  The  increasing  diffi¬ 
culty  of  providing  an  additional  quantity 
of  food  with  the  same  proportional  quan¬ 
tity  of  labour,  which  raises  rent,  also  raises 
wages,  55.  Difference  between  the  rise 
of  rent  and  the  rise  of  wages  explained, 
55.  Always  falls  on  the  consumer,  and 
not  on  the  farmer,  63.  A  tax  on,  would 
fall  wholly  on  landlords,  and  could  not  be 
shifted  to  any  class  of  consumers,  102.  A 
tax  on  rent,  as  it  is  constituted,  would  dis¬ 
courage  cultivation,  102.  Corn  rents  ma¬ 
terially  affected  both  by  tithes  and  amoney 
tax,  104.  A  land  tax  levied  in  proDor- 
tion  to,  and  varying  witn  us  rent,  is  in 
effect  a  tax  on  rent,  and  falls  on  the  land¬ 
lord,  107.  Of  houses  distinguished  into 
two  parts,  building  rent,  and  ground  rent, 
119.  Ground  rents,  and  the  ordinary  rent 
of  land,  not  fit  subjects  for  exclusive  taxa  - 
tion,  121.  Examination  of  Adam  Smith’s 
doctrine  concerning  the  rent  of  land,  197- 
203.  Examination  of  Mr  Malthus’s  opi¬ 
nions  on  rent,  243-9.  Neither  increase  of 
population,  nor  agricultural  improvements, 
causes  the  rise  of  rent,  250-1.  Loss  ofrent 
the  effect  of  a  low  price  of  corn,  259-260. 


Table  showing  the  progress  of  rent  and 
profit  under  an  assumed  augmentation  cf 
capital,  376. 

Revenue.  Advantages  derived  by  a 
country  from  a  large  gross,  rather  than  a 
large  net  revenue,  constantly  magnified 
by  Adam  Smith,  210,  and  byM.  Say,  210,  n.  v- 
Examination  of  their  doctrine,  210-212. 
The  labouring  classes  have  an  interest  in 
the  manner  in  which  the  net  income  of 
the  country  is  expended,  239.  A  dimi¬ 
nution  of  gross,  not  necessarily  followed 
by  a  diminution  of  net  income,  256-8. 
Adam  Smith’s  distinction  between  money1' 
and  revenue,  284. 

Riches,  definition  of,  165.  Difference 
between  value  and  riches  explained  and 
considered,  165-173.  May  be  increased 
in  two  ways, — by  employing  a  greater  por¬ 
tion  of  revenue  for  the  maintenance  of 
productive  labour,  thereby  adding  to  the 
quantity  and  value  of  commodities  ;  or  by 
making  the  same  quantity  of  labour  more 
productive,  thereby  adding  to  the  abun¬ 
dance  of  commodities,  but  not  to  their 
value,  168.  Why  the  last  mode  of  in¬ 
creasing  them  is  preferable,  168-9.  Er¬ 
roneous  views  of  M.  Say  in  regard  to  value 
and  riches,  considered,  169-173. 

S. 

Say,  M.  “  Economie  Politique”  cited,'-' 
G.  Quoted  as  to  the  use  of  natural  agents, 
35,  n.  As  to  the  regulation  of  price  38,  n. 
His  opinion  that  taxes  on  the  transference 
of  property  are  impolitic,  89.  Ilis  mis¬ 
taken  views  of  the  nature  and  effects  of  the 
English  land  tax  considered  and  corrected, 
110-1.  His  error  as  to  taxes  in  kind,  rec¬ 
tified,  111-2.  His  erroneous  opinion  that 
the  price  of  corn  influences  the  price  of 
all  other  commodities,  136,  n.  His  maxim 
as  to  the  best  plans  of  finance  and  taxation, 
quoted  and  commended,  141-5.  His  re¬ 
marks  as  to  the  operat  ion  of  taxes  on  com¬ 
modities,  quoted,  142-3-6,  notes.  His  opi¬ 
nion  as  to  the  effect  of  credit,  quoted  and 
controverted,  150,  n.  Fallacy  of  his  argu¬ 
ment,  that  taxes  on  raw  produce  fall  on 
the  landlord,  153-4.  Overstates  the  ad¬ 
vantages  of  commerce,  160,  n.  False 
inference  he  has  drawn  as  to  the  value 
of  silver,  166,  n.  Remarks  on  the  fallacy 
and  inconsistency  of  his  views  as  to  value 
and  riches  being  synonymous,  169-173. 
Overlooks  the  essential  difference  between 
value  in  use,  and  value  in  exchange, 
172-3.  His  reasoning  on  the  inconve¬ 
nience  of  public  loans,  inconclusive,  180, 
i  Jn.  Wrong  in  supposing  that  prohibition 
of  importation  enables  producers  at  home 
permanently  to  raise  the  market  over  the 
natural  price,  190-191,  notes.  His  con¬ 
tradictory  opinions  as  to  the  profits  of 


580 


INDEX. 


home  and  foreign  trade,  191-2,  notes. 
Magnifies  (as  does  also  Adam  Smith) 
the  advantages  of  a  large  gross  rather 
than  a  large  net  revenue,  210,  n.  Obser¬ 
vations  on  his  overstatement  of  the  incon¬ 
veniences  of  taxes  paid  by  the  producer, 
230-1.  His  opinion  on  the  influence  of 
demand  and  supply  on  prices,  quoted,  233. 
Mistaken  in  his  view  of  gross  and  net 
produce,  256,  n. 

Scarcity.  One  of  two  sources  of  the 
exchangeable  value  of  useful  commodi¬ 
ties,  9.  The  value  of  some  commodities 
determined  by  scarcity  alone,  9. 

Scotsman.  Observations  of  the  au¬ 
thor  on  Parliamentary  Reform,  printed 
in  the  Scotsman  of  the  24th  April,  1824, 
551-556.  Speech  of  the  author  in  Parlia¬ 
ment,  on  the  plan  of  Voting  by  Ballot, 
printed  in  the  Scotsman  of  17  th  July  1824, 
559-564. 

Seignorage.  Effects  of  the  State  charg¬ 
ing  a  seignorage  on  the  coining  of  money, 
213-4,  225.  Rates  of  seignorage  in  Prance 
at  different  periods,  318,  n.  Observa¬ 
tions  on  the  principles  of,  345-7.  Limits 
beyond  which  a  seignorage  cannot  he  ad¬ 
vantageously  extended,  345. 

Silver.— -See  Gold  and  Silver. 

Simonde,  M.,  remarks  on  the  opinion 
of,  as  to  the  inconveniences  attending  a 
tax  paid  by  the  producer,  231. 

Sinking  Fund.  None  can  be  efficient 
for  diminishing  the  national  debt,  unless 
derived  from  the  excess  of  public  revenue 
over  expenditure,  149.  How  managed  in 
England,  219.  Account  of  the  rise,  pro¬ 
gress,  and  modifications  of  the  Sinking 
Fund,  with  observations  as  to  the  proba¬ 
bility  of  its  accomplishing  the  object  for 
which  it  was  instituted,  515-538.  Mr 
Huskisson’s  speech  of  25th  March  1813, 
on  the  state  of  the  finance  and  Sinking 
Fund,  518-9.  Mr  Pitt’s  speech  of  17th 
February  1792,  on  the  Sinking  Fund,  521. 
Effect  of  Mr  Vansittart’s  plan,  on  the 
Sinking  Fund,  523,  n.  Comparison  of 
the  plans  of  Mr  Pitt  and  Mr  Vansittart, 
523-6.  Lord  Henry  Petty’s  speech  in 
1807,  on  the  accumulation  of  the  Sinking 
Fund,  532-3.  Mr  Pitt’s  speech  in  1786,  on 
the  Sinking  Fund,  542-3.  The  Sinking 
Fund  has  greatly  increased  the  debt 
instead  of  diminishing  it,  545.  Mr  Van¬ 
sittart’s  speech  in  1813,  on  the  Sinking 
Fund,  546-7. 

Smith,  Dr  Adam,  not  having  viewed 
correctly  the  principles  of  rent,  has,  in 
consequence,  overlooked  many  important 
truths,  5.  His  definition  of  value,  9. 
His  definition  of  real  price,  10.  Corn 
or  labour,  his  standard  measure  of  value, 
alleged  to  be  as  variable  as  gold  and 
silver,  11.  Incorrect  in  saving  that  la¬ 


bour  alone,  never  varying  in  its  own 
value,  is  the  sole  idtimate,  and  real  stan¬ 
dard,  12.  His  doctrine  correct,  that  the 
proportion  between  the  quantities  of  la¬ 
bour  necessary  for  acquiring  different 
objects,  is  the  only  circumstance  which 
can  afford  any  rule  for  exchanging  them, 
13.  Quoted  as  to  the  difficulty  of  ascer¬ 
taining  the  proportion  between  different 
quantities  and  sorts  of  labour,  15,  n.  His 
statement,  that  the  proportion  between 
different  rates  of  wages  and  profits,  is  not 
much  affected  by  revolutions  in  the  public 
welfare,  quoted,  15.  His  doctrine,  that  a 
rise  in  the  price  of  labour  is  uniformly 
followed  by  a  rise  in  the  price  of  all  com¬ 
modities,  unsound,  30.  Strictures  on  his 
definition  of  rent,  34.  His  theory  of  pro¬ 
ductive  and  unproductive  labour  consider¬ 
ed,  39,  n.  Mr  Buchanan’s  observation 
thereon,  40,  n.  Cited,  49,72.  His  opinion 
that  taxes  on  the  transference  of  property 
are  oppressive,  89.  His  four  maxims,  to 
which  all  taxes  should  conform,  107-8. 
His  erroneous  view  of  taxes  on  the  pro¬ 
duce  of  land,  corrected,  108-9-10.  His 
opinion  that  ground  rents,  and  the  ordin¬ 
ary  rent  of  land  are  fit  subjects  for  peculiar 
taxation,  quoted  and  objected  to,  120-1 
His  opinion  as  ta  the  immediate  effect  of 
a  tax  on  the  wages  of  labour,  129.  Mr 
Buchanan’s  objections  thereto  confuted, 
129-133.  Though  correct  in  his  view  of 
the  immediate,  is  incorrect  in  his  view  of 
the  eventual,  operation  of  a  tax  on  wages, 
133-6-140.  Correction  of  his  mistaken 
view  of  taxes  on  necessaries,  140.  Ably 
explains  the  disadvantage  of  a  low  value 
of  the  precious  metals  proceeding  from 
forced  abundance,  137.  His  argument  just, 
that  the  labouring  classes  cannot  materi¬ 
ally  contribute  to  the  burdens  of  the  State, 
141.  Correct  in  his  statement,  that  the 
malt  tax  falls  on  the  consumer,  152-3. 
Mr  Buchanan’s  remarks  thereon,  153. 
Quoted  as  to  the  difference  between  the 
real  and  the  nominal  price  of  commodities 
and  labour,  166,  n.  Gives  an  incorrect,  as 
well  as  a  correct  description  of  riches,  1 68. 
Cites  Holland  as  affording  an  instance  of 
the  fall  of  profits  from  the  accumulation 
of  capital,  without  considering  her  peculiar 
position,  175.  Wrong  in  saying  that  when 
the  produce  of  any  particular  branch  of 
industry  exceeds  the  demand,  the  surplus 
must  be  sent  abroad,  175,  n.  Mistaken  as 
to  the  origin  of  the  carrying  trade,  177-8. 
Quoted  as  to  the  difficulty  of  determining 
the  rate  of  profits,  178.  Remarks  on  his 
objectionable  doctrines,  as  to  bounties  on 
exportation  and  prohibitions  of  importa¬ 
tion,  183-9.  Falls  into  error  from  think¬ 
ing  that  the  money  price  of  corn  regulates 
that  of  all  other  home  made  commodi 


INDEX. 


581 


ties,  185.  His  correct  account  of  the  na¬ 
ture  of  value,  186.  Right  in  saying  that 
n  bounty  causes  a  partial  degradation  in 
the  value  of  money,  186.  Wrong  infer¬ 
ence  he  has  drawn  from  the  great  differ¬ 
ence  existing  between  corn  and  other 
goods,  188.  Strictures  on  his  doctrine 
concerning  the  rent  of  land,  197-203.  Has 
admirably  explained  the  principle  of  rent, 
when  treating  of  mines,  but  has  not  ap¬ 
plied  the  same  to  land,  as  he  should  have 
done,  199.  Observations  on  the  evils  of 
a  monopoly  of  the  colony  trade,  204.  He 
overrates  those  evils,  208.  Quoted  as  to 
the  effect  of  treaties  of  commerce,  205. 
Constantly  magnifies  the  advantages  de¬ 
rived  by  a  country  from  a  large  gross, 
rather  than  a  large  net  revenue,  210.  His 
argument  fallacious,  that  though  the  re¬ 
turns  of  the  foreign  trade  of  consumption 
be  as  quick  as  the  home  trade,  the  former 
gives  but  half  the  encouragement  to  the 
industry  or  productive  labour  of  the  coun¬ 
try,  212.  Strictures  on  his  principles  of 
paper  currency,  214-5.  The  superiority 
he  awards  to  the  Scotch  mode  of  affording 
accommodation  to  trade  by  cash  accounts, 
‘fanciful,  221.  Not  aware  of  the  incon¬ 
venience  of  employing  each  of  two  metals 
in  currency  as  legal  tender  for  debts  of 
any  amount,  223-4.  Examination  of  his 
doctrine  relative  to  the  comparative  value 
of  gold,  corn,  and  labour  in  rich  and  poor 
countries,  226-9.  His  error  in  supposing 
the  value  of  corn  to  be  constant,  227. 
Quoted  as  to  the  foundation  of  the  high 
price  of  precious  metals,  263.  His  dis¬ 
tinction  between  money  and  revenue,  284. 
Quoted  as  to  the  pernicious  effects  of  a 
State  disguising  its  bankruptcy  by  debasing 
its  coin,  288-9.  Quoted  as  to  the  duty 
for  coinage  in  France,  318,  n.  His  prin¬ 
ciple,  that  the  paper  money  of  every'  kind 
which  can  easily  circulate  in  a  country' 
can  never  exceed  the  value  of  the  gold 
and  silver,  of  which  it  supplies  the  place, 
344. 

Spain,  low  value  of  money  in,  prejudicial 
to  its  manufactures  and  commerce,  137. 

Specie. — See  Good  and  Silver,  and 
Monet. 

Stamp  Duties,  the  levying  of,  impolitic, 
as  a  tax  on  the  transference  of  property, 
89-131. 

Standard,  an  invariable  standard  of' 
value  imaginary,  41-2.  Objections  to  the 
use  of  a  standard  commodity  considered. 
400-2.  Imperfections  of  the  standard. 
402-403.  Effects  of  variations  of  the 
currency  below  the  standard,  without  al¬ 
lowance  for  the  countervailing  variations 
above  it,  403.  Correspondence  with  the 
standard,  the.  rule  for  paper  money.  403-4. 
Effect  of  Mr  Peel’s  bill  for  restoring  the 


ancient  standard,  on  the  price  of  corn, 
467-475. 

Stock,  essay  on  the  influence  of  a  low 
price  of  corn  on  the  profits  of  stock,  371- 
390. 

Stockholders,  less  benefited  than  farmers 
and  manufacturers  by  the  low  value  ot 
corn,  258-9.  Remedy  proposed  for  the 
mercantile  inconvenience  caused  by  the 
quarterly  payments  of  dividends  to  the 
public  creditors,  410-11. 

Steuart,  Sir  James,  quoted  as  to  testing 
the  value  of  the  currency  by  exchange, 
275. 

Supply  and  Demand. — See  Demand 
and  Supply. 

Sweden,  causes  of  the  favourable  ex¬ 
change  with  Sweden  considered,  320-1,  n. 

T. 

Taxes,  on  what,  the  ability  to  pay  them 
depends,  7.  Their  nature,  and  from  what 
sources  they  are  ultimately  paid,  87.  In 
what  the  great  evil  of  taxation  consists, 
88.  Taxes  not  necessarily  taxes  on  capital 
or  income,  because  laid  on  these  respec¬ 
tively,  88.  Illustrations  of  this  principle, 

88.  Impolicy  of  taxes  inevitably  falling 
on  capital,  89.  Of  this  nature  are  taxes 
on  the  transference  of  property,  borrowed 
money,  and  legal  proceedings,  89.  On 
whom  and  what,  such  taxes  generally  fall, 

89.  Facility  of  their  collection  some'com- 
pensation  for  their  injurious  effects,  90. 
Nature  and  effects  of  a  tax  on  raw  pro¬ 
duce,  91.  A  rise  in  price,  the  only  means 
by  which  the  cultivator  can  pay  this  tax, 
91.  It  thus  foils  on  the  consumer,  91-3. 
Objections  to  this  tax  considered  and  an¬ 
swered,  91-101.  A  tax  on  raw  produce, 
and  on  the  necessaries  of  the  labourer, 
raises  wages  and  lowers  profits,  93.  Taxa¬ 
tion  either  must  act  on  profit,  or  other 
sources  of  income,  or  it  must  act  on  ex¬ 
penditure,  98.  Taxes  on  the  profits  of 
stock  applied  directly  or  indirectly,  pro¬ 
vided  all  other  income  be  taxed,  have  this 
advantage  over  others,  that  no  one  can 
escape  them,  and  each  contributes  accord¬ 
ing  to  his  means,  98.  A  tax  on  rent  would 
fall  wholly  on  landlords,  and  could  not  be 
shifted  to  any  class  of  consumers,  102. 
A  tax  on  rent,  as  it  is  constituted,  would 
discourage  cultivation,  102.  Nature  of 
tithes,  and  difference  between  them,  and 
taxes  on  rent,  and  on  raw  produce,  104. 
Tithes  an  equal  tax,  104.  Corn  rents 
materially  affected  both  by  tithes  and  a 
money  tax,  104-5.  Objections  to  tithes, 
105-6.  Different  modes  in  which  a  land- 
tax  may  be  levied,  107.  If  levied  in  pro¬ 
portion  to,  and  varying  with  the  rent  of 
land,  it  is  in  effect  a  tax  on  rent,  and  falls 
on  the  landlord.  107.  If  imposed  on  all 


582 


INDEX. 


cultivated  land,  it  is  a  tax  on  produce,  and 
will  therefore  raise  its  price,  701.  A  tax 
on  all  cultivated  land  may  be  in  proportion 
to  its  quality  and  produce,  in  the  same 
way  as  tithes,  or  it  may  be  a  fixed  tax  per 
acre,  107.  The  latter  contrary  to  one  of 
the  maxims  to  which  all  taxes  should 
conform,  107-8.  The  faille  in  France  be¬ 
fore  the  Revolution,  it  tax  of  this  objec  ¬ 
tionable  description,  108.  Tendency  to 
discourage  cultivation  and  production,  an 
evil  inseparable  from  all  taxation,  109. 
On  whom  a  tax  on  gold  would  temporarily 
and  ultimately  fall,  114-8.  Effects  of  a 
tax  on  gold,  1 1 5-8.  Taxes  on  houses,  by 
whom  borne,  119-120.  Ground  rents  not 
a  fair  subject  for  exclusive  taxation,  120-1 . 
Taxes  on  necessaries,  virtually  taxes  on 
profits,  122.  Taxes  on  profits  considered, 
122-128.  Tax  on  the  farmer’s  profits, 
how  beneficial  to  the  landlord,  126-7. 
All  taxation  tends  to  lower  the  relative 
value  of  money,  and  to  encourage  its  ex¬ 
portation,  128.  Effects  of  taxes  on  wages, 
129.  Difference  between  a  tax  on  neces¬ 
saries  and  a  tax  on  wages,  129.  The  re¬ 
sults  of  a  tax  on  wages,  will  be  the  same 
as  those  of  a  direct  tax  on  profits,  129- 
136.  What  commodities  are  the  fittest 
objects  of  taxation,  144.  The  advantages 
and  disadvantages  of  taxes  on  luxuries 
stated,  144-5.  Effect  of  taxes  to  defray 
the  interest  of  loans,  145.  Effect  of  a  tax 
on  luxuries,  146.  Nature  of  poor  rates, 
and  their  operation  under  different  cir¬ 
cumstances,  considered,  155-8.  High  du¬ 
ties  on  the  importation  of  manufactures  or 
of  corn,  or  a  bounty  on  their  exportation, 
the  worst  species  of  taxation,  189.  A 
bounty  on  the  production  of  corn,  raised 
from  a  tax  on  commodities,  would  make 
corn  relatively  cheap  and  manufactures 
dear,  and  vice  versa,  195.  The  incon¬ 
veniences  supposed  to  result  from  the 
levying  of  a  tax  on  manufactured  commo¬ 
dities  at  an  early  period  of  their  manufac¬ 
ture,  are  greatly  magnified,  230- 1 .  Consi¬ 
derable  additions  may  be  made  to  the 
taxes  of  a  country  without  a  correspond¬ 
ing  increase  in  its  circulating  medium,  355. 
Effects  of  taxes  imposed  on  a  particu¬ 
lar  commodity,  463-5.  Question — Can 
the  present  state  of  agricultural  distress 
be  attributed  to  taxation  ?  considered, 
487-491. 

Tenants. — See  Farmers. 

Thornton,  Mr,  quoted  as  to  the  embar¬ 
rassment  of  the  Bank,  caused  by  an  over¬ 
issue  of  notes  payable  in  specie,  267.  His 
error,  from  confusing  an  increase  irt  the 
value  of  gold  and  an  increase  in  its  money 
price,  exposed,  267-8.  Quoted  as  to  the 
conduct  of  the  Bank  before  the  restriction, 
276.  Quoted  as  to  the  non-depreciation 


of  circulating  paper,  278.  Quoted  as  to  the 
inefficiency  of  the  law  to  prevent  the  ex¬ 
portation  of  gold  coin,  280.  Fallacy  of 
his  argument,  that  the  gains  of  the  Bank 
were  in  proportion  to  their  notes  in  circu’..,- 
tion,  and  that  no  advantage  was  derived 
from  the  public  deposits,  except  that  they 
could  thereby  maintain  more  notes  in  cir¬ 
culation,  412-3. 

Tithes,  nature  of,  104.  Difference  be¬ 
tween  them  and  a  tax  on  rent,  104.  They 
are  an  equal  tax,  104.  Difference  between 
them,  and  taxes  on  raw  produce,  104. 
Effects  of,  in  different  states  of  society, 
104.  Corn  rents  materially  affected  by, 
104-5.  Objections  to,  1st,  they  are  not  a 
permanent  and  fixed  tax,  but  increase  in 
value,  as  the  difficulty  of  producing  corn 
increases  ;  2d.  they  increase  with  the  gross, 
and  fall  on  the  net  produce  of  land  ;  and, 
3d,  they  are  injurious  to  landlords,  as  they 
act  as  a  bounty  on  importation,  105-6. 
They  do  not  discourage  cultivation  more 
than  an  equal  amount  would  do,  if  raised 
in  any  other  manner,  105. 

Torrens,  Colonel,  liis  Essay  on  the  ex¬ 
ternal  corn  trade  quoted,  as  to  the  dif¬ 
ference  between  the  natural  prices  of 
labour  in  different  countries,  52,  The 
arguments  in  his  Essay  on  the  impo¬ 
licy  of  restricting  the  importation  of  corn 
commended,  and  declared  unanswerable, 
164,  n. 

Trade.  The  profits  of  a  favoured  trade, 
whether  foreign  or  home,  speedily  subside 
to  the  general  level,  73-5.  Illustrations 
of  this  principle,  73-5.  General  causes 
of  sudden  changes  in  the  channels  of, 
159-1 60.  How  injuriously  affected  by  the 
commencement  of  war  after  a  long  peace, 
or  of  peace  after  a  long  war,  1 60.  A  re¬ 
vulsion  in,  more  severely  felt  in  rich,  than 
in  poorer  countries,  161.  Nature  and 
origin  of  carrying  trade  considered,  177-8. 
Importance  of  free  trade  to  Great  Britain, 
190-1,  n.  Observations  on  colonial  trade, 
204-9.  Temptation  to  export  money  for 
goods,  termed  an  unfavourable  balance  of 
trade,  267.  Two  ways  in  which  a  country 
may  be  benefited  by  trade,  380-1. — See 
also  Carrying  Trade,  Colonial  Trade, 
Commerce,  Foreign  Trade,  and  Free 
Trade. 

Treaties.  Effects  of  commercial  treaties 
considered,  205-7. 

U. 

Utility,  though  not  the  measure  of  ex¬ 
changeable  value,  essential  to  it,  9. 

V. 

Value,  the  sources  of  defined  by  Adam 
Smith,  9.  Utility,  though  not  the  mea¬ 
sure  of,  essential  to  exchangeable  value, 


TNDEX. 


583 


9.  Exchangeable  value  of  useful  commo¬ 
dities  derived  from  their  scarcity,  and  the 
quantity  of  labour  required  to  obtain  them, 
9.  Value  of  some  commodities  deter¬ 
mined  by  scarcity  alone,  9.  Corn  or 
labour  as  variable  a  medium  of  value  as 
gold  and  silver,  11.  Effects  of  accumula¬ 
tion  of  capital  on,  16.  Exchangeable 
value  of  commodities  is  in  proportion  to 
the  labour  bestowed,  not  only  on  their 
immediate  production,  but  on  that  of  all 
the  implements  and  capital  required  to 
give  effect  to  the  producing  labour,  17. 
Economy  in  labour  reduces  the  relative 
value  of  a  commodity,  18.  Illustrations 
of  this  principle,  18.  Effects  of  a  rise  in 
wages  on  value,  19.  The  principle  that 
value  does  not  vary  with  a  rise  or  fall  of 
wages,  how  modified  by  the  unequal  dura¬ 
bility  of  capital,  25.  Impossible  to  have 
an  invariable  standard  measure  of,  28. 
Gold  approaches  nearer  to  an  invariable 
standard  of,  than  any  other  commodity, 
29-46.  Variations  in  the  value  of  money 
do  not  affect  the  rate  of  profits,  32.  The 
value  of  commodities  regulated  by  the 
quantity  of  labour  necessarily  bestowed 
on  their  production  under  the  most  unfa¬ 
vourable  circumstances,  37.  The  general 
rule  which  regulates  the  value  of  raw 
produce  and  manufactured  commodities, 
is  applicable  also  to  metals,  45.  Ef¬ 
fects  of  the  discovery  of  American  mines 
on  the  value  of  metals,  46.  The  same 
rule  which  regulates  the  value  of  commo¬ 
dities'  in  one  country  does  not  regulate 
the  value  of  those  exchanged  between 
two  or  more,  75.  Different  value  of 
money  in  different  countries  accounted 
for,  81-3.  Improvement  in  the  facility  of 
working  the  mines  of  precious  metals  will 
diminish  the  value  of  money  generally,  83. 
Difference  between  value  and  riches  ex¬ 
plained  and  considered,  165-173.  Ma¬ 
chinery,  and  natural  agents  acting  gratui¬ 
tously,  add  to  a  commodity,  value  in  use, 
blit  not  value  in  exchange,  172-3.  The 
value  of  gold  and  silver  proportioned 
to  the  labour  necessary  to  produce  and 
bring  them  to  market,  213.  The  quan¬ 
tity  of  money  employed  in  a  country  must 
depend  on  its  value,  213.  Payment  in 
specie  not  necessary  to  secure  the  value 
of  paper  money,  214.  Only  necessary 
that  its  quantity  should  be  sufficiently 
limited,  214.  A  currency  is  in  its  most 
perfect  state  when  it  consists  wholly  of 
paper  money,  of  an  equal  value  with 
the  gold  it  professes  to  represent,  218. 
Investigation  of  the  comparative  value  of 
gold,  com,  and  labour,  in  rich  and  poor 
countries,  226-9.  A  fall  in  the  value  of 
corn  not  so  beneficial  to  stockholders,  as 


to  farmers  and  manufacturers,  258-9.  The 
intrinsic  value  of  gold  and  silver,  from 
what  sources  derived,  263.  Different 
effects  of  a  depreciated  currency  on  the 
value  of  land,  and  of  the  funds,  287 
Causes  of  a  fall  in  the  exchangeable  value 
of  food,  379.  Effects  of  a  low  value  of 
corn  on  the  rate  of  profit,  475-8. 

Vansittart,  Mr,  his  application,  in  1814, 
to  the  Bank,  in  which  he  alludes  to  the 
participation  of  the  public  in  its  advan¬ 
tages,  420.  Effect  of  his  plan  on  the 
sinking  fund,  523,  n.  Comparison  of  the 
effects  of  his  plan,  and  that  of  Mr  Pitt, 
523-6.  His  speech  in  1813  on  the  sinking 
fund,  546-7. 

Voting  by  Ballot,  speech  of  the  author 
in  Parliament  on  this  question,  printed  in 
the  Scotsman  of  17th  July  1824,  559-564. 

W. 

Wages.  Effects  of  a  rise  in,  on  relative 
value,  19.  Natural  and  market  rates  of 
wages  distinguished,  50-51.  Increase  of 
capital  in  quantity  and  value,  raises  the 
natural  and  market  rates  of  wages,  51. 
Increase  of  capital  in  quantity,  but  not  in 
value,  raises  the  market  rate  of  wages 
only,  51.  Causes  of  the  difference  be¬ 
tween  the  natural  rates  of  wages  in  dif¬ 
ferent  countries,  52,  and  n.  Wages  sub¬ 
ject  to  a  rise  or  fall  from  two  causes, — from 
variation  in  the  supply  of  and  demand  for 
labourers,  and  from  variation  in  the  price  of 
commodities  on  which  wages  of  labour  are 
expended,  53.  The  increasing  difficulty  of 
providing  an  additional  quantity  of  food 
with  the  same  proportional  quantity  of 
labour,  which  raises  rent,  also  raises  wages, 
55.  Blustrations  of  this  principle,  55-6. 
Difference  between  the  rise  of  rent,  and 
the  rise  of  wages  explained,  55.  A  rise 
in  wages  not  always  productive  of  com¬ 
fort  to  the  labourer,  55-6.  A  rise  of  w'ages 
not  necessarily  productive  of  a  rise  in 
the  price  of  commodities,  57.  Should 
never  be  controlled  by  the  interference  of 
the  legislature,  57.  The  rate  of  profits 
can  never  be  increased  but  by  a  fall  in 
wages,  75.  No  permanent  fall  of  wages, 
hut  in  consequence  of  a  fall  of  the  neces¬ 
saries  on  which  wages  are  expended,  75. 
A  diminution  in  the  wages  of  labour 
raises  profits,  but  produces  no  effect  on 
the  price  of  commodities,  75.  Profits  de¬ 
pend  not  on  nominal  hut  real  wages,  82. 
A  tax  on  raw  produce  and  the  necessaries 
of  the  labourer,  raises  wages,  93.  Effects 
of  taxes  on,  129-136.  Difference  between 
a  tax  on  necessaries,  and  a  tax  on  wages, 
129.  The  results  of  a  tax  on,  the  same 
as  those  of  adirect  tax  on  profits,  129-136. 
Effects  of  a  low  price  of  corn  on  wages 


2s 

584  index. 


and  profits,  163.  Influence  of  a  rise  of 
wages  on  the  price  of  corn,  461-3. 

War,  tlie  commencement  of,  after  a 
long  peace,  or  the  commencement  of 
peace  after  a  long  war,  how  productive  of 
distress  in  trade.  1 60.  Evil  effects  of  a 
transition  from  war  to  peace  on  agricul¬ 


ture,  161.  Suggestions  for  their  remedy 
quoted  from  the  Encyclopedia  Britannica, 
and  approved  of,  161. 

Wealth,  a  rise  of  rent  always  the  effect 
ofdncreasing  wealth,  40.  The  rise  of  rent 
is  a  symptom,  but  never  a  cause  of,  40. 
Causes  of  the  increase  ol,  40-166. 


THE  KN1>. 


Morrison  and  Gibb,  Edinburgh, 
Printers  to  Her  Majesty’s  Stationery  Office. 


